Now that you’re maximizing your payments toward the debt you’ve prioritized, make sure it happens by automating your payments. Set up an automatic transfer in your designated amount from your checking account or your savings account to that debt each month, and it will be well on its way to disappearing!
Your Turn: How much time can you save each month by making all of your payments automatic? Brag about it in the comments!
Choose the debt you’d like to pay down first. Financial expert Dave Ramsey suggests starting from the smallest debt and working your way up. You can also choose to start with the debt that carries the highest interest rate. Either way, once you’ve paid down the first loan or line of credit, you’ll move onto the next and continue to work your way through all remaining debt until you’re completely debt-free.
For now, paying off this debt will be your top priority. Be sure to pay the minimum payments on all other debts, but any extra money you have at the end of the month goes towards the first one. Start with the minimum payments you were making anyways, and add the money that was previously going towards setting up your savings account to create your debt snowball. Whenever possible, try to add money to your snowball to accelerate your progress.
Doesn’t this feel great? You’re on your way to a debt-free life!
Did you choose to start with your lowest debt or the one carrying the highest interest rate? Share your choice and your reasons with us in the comments.
This month, you’re going to organize your finances. Hold onto every receipt, bill, paystub and invoice you produce throughout the month. Sometime during the last week of May, sit down with all of your paperwork and start crunching the numbers.
When you’re through, you should have all of these questions answered:
How much is my net monthly income?
How much are my monthly fixed expenses?
How much are my monthly non-fixed expenses?
Now that you have the numbers in front of you, work on creating a budget. Designate the necessary funds for your fixed expenses. Then, with the remaining money, determine how much you will spend in each non-fixed expense category; like groceries, clothing, entertainment, etc.
Put your minimum debt payments in the fixed-expenses category, with another category for extra debt payments in your column of non-fixed expenses.
What was the most challenging part of creating your monthly budget?
You may be feeling impatient to start more aggressively paying down debt, but it’s important to first create an emergency fund. If you don’t have money socked away for unexpected expenses, you’ll be tempted to use the money that’s already earmarked for your debt payments to fund this expense.
Experts recommend keeping three months’ worth of living expenses in an emergency fund, but you can start with a modest $1,000. Set up an automatic monthly or weekly transfer from your [credit union] Checking Account to your Savings Account until you have a fully padded emergency fund. This may take several months, but no worries, you can continue following the next few steps towards a debt-free life as your emergency fund grows.
Your Turn: Why do you think it’s so important to have an emergency fund? Share your thoughts with us in the comments.
If the majority of your outstanding debt is credit card debt, you may be spending hundreds of dollars just on interest alone. Aside from wasting money, this keeps you from moving forward and paying down your debt.
Most people don’t know you can call up a credit card company and negotiate for a lower APR. Take the time this month to do that. Explain that you are working on paying down your debt and that the interest payments are impeding your progress. You can even research competing cards and cite their interest rates in a bid for a lower APR from your current credit card company.
Lowering your interest rates will allow you to make another real step toward getting rid of debt.
Your Turn: Have you ever negotiated for a lower APR on your credit cards? Share your success stories with us in the comments!
You’re determined that this will be the year you finally pay down (or pay off) that debt. Get ready, because every month, our Do It Today plan will have you taking another step on your journey toward living a debt-free life.
First, sit down and take stock of all your debts. Don’t let the numbers scare you; you need to do this to move forward. Get out every single credit card bill, personal loan, student loan, and any other debt you’re carrying (except your car and mortgage payments). Tally up the numbers to give yourself an idea of what you’re dealing with.
Next, organize your debt into different categories, such as credit card debt, student debt, personal loans etc. Use a spreadsheet to list your debt, the remaining term of each loan (if applicable), the minimum payment and the interest rate.
Finally, designate one hour each week for working on your finances.
Did you take stock of all your debt? Did the numbers surprise you?