Tips and Strategies to pay off Debt

[captainredracer]

Tips and Strategies used by our members to successfully remove their debt:

• Be honest with yourself about what you owe. Lots of people have a hard time totaling up their debts because they know the number is just going to be too high. That’s okay. We know it’s hard. But you will never achieve freedom from debt without facing the numbers.
  
  
• Race your debt in “chunks”. Taking small steps toward debt reduction can be less overwhelming than racing all of your debt. Choose the debt that is manageable for you to race and succeed with to win your race. Then come back to add additional debt. For example: many members choose to race the debt that is smaller (CC, car loans, etc) and leave off the larger debt (mortages, HELOC, large student loans) until they have won their race with their smaller debt. This method is a great motivator!
  
  
• Divide and conquer. Many people divide their list into categories: Consumer, Education, and Mortgage. Seeing how much is in each category can make it easier to tackle, and thus create feelings of accomplishment.
  
  
• Come up with a game plan and set goals. The people who have been most successful in this group have several things in common. First, they create a budget to see where their money is going. Then they decide where (or if) they can make changes to the budget to have more money to go toward debt repayment. Next, they set goals that are measurable and realistic. They get the support of their spouses or partners – this is critical. Then, they make a plan to get to their goal (i.e. a timeline). Finally, they use some variation of the “snowball” method so that they can really see progress being made. See "Snowballing" below.
  
  
• Create an Emergency Fund. Right after deciding to really tackle their debts, nearly everyone has had some sort of setback or “speedbump”—i.e. an unexpected expense. In order to get out of debt, the number one thing is to NOT CREATE MORE DEBT. To prepare for trouble, and prevent unwanted extra debt, set up a small emergency fund by starting an automatic contribution to a savings account that is only to be used in “Emergency” situations.
  

Debt Reduction Techniques

• DEBT SNOWBALLING
  
  If you've ever heard of Dave Ramsey, then you'll probably have heard of the snowball method. This is the most successful method we've found for paying down debt and staying motivated. There are two ways to do the snowball approach, and different people prefer each one. People like this method and because you experience some immediate success, which builds momentum.
  
  
• SMALLEST DEBT APPROACH
  
  The basic principles say to start with your smallest debt and pay that one off first. Then you stop and strategize again, but you do that with a win under your belt. The Dave Ramsey snowball approach has you list your debts from lowest to highest, like this:
  • CC#1: $175 minimum payment $25
  • CC#2: $300 minimum payment $30
  • CC#3: $2,500 minimum payment $50
  • Student loan: $8,600 minimum payment $100
  • Car loan: $12,500 minimum payment $250
  
  Once you've got your debts lined up, you apply any extra money you have each paycheck to the lowest debt. So, if you have an extra $100 a month, you put it first towards CC#1. Once CC#1 is paid off, then you send that extra $100 PLUS the $25 minimum payment you were paying to CC#1 over to CC#2. When that's paid off, you'd send $100 + $25 + $30 to CC#3. Each time you pay off a debt, you can “snowball” that money to the next debt, which makes it go down much faster.
  
  
• HIGHEST-INTEREST RATE APPROACH
  
  Some people snowball based on interest. List your debts from highest interest rate to lowest interest rate. When listing debts by interest rate, you use the same method as above, you just put the debts in a different order, like this:
  
  
  • CC#1: $2,500 @ 18%
    
  • CC#2: $175 @ 12%
    
  • Car loan: $12,500 @ 7.49%
    
  • CC#3: $300 @ 5.99%
    
  
  
  Some racers start with the debt that bothers them the most, just because removing it feels good. Maybe you have a loan that someone cosigned on, and paying that off will help a relationship. Maybe you're upside down on a car loan. But it's probably not smart to start with your biggest debt, because it takes longer to see progress. Once you get going, the snowball method helps you see the fastest progress and keeps you motivated.
  

Bring in additional income to pay off debt faster or to build your Emergency Fund

Several of our members have found sources of additional income and used that extra income to pay debt off faster or to build their Emergency Fund. Here are some ideas to bring in additional income:

• Get a second or third job. Some have had good luck getting extra work during the holidays when the department stores are hiring extra people.
  
  
• Get specialized training in your job that will enable you to get a promotion and a pay raise.
  
  
• Sell the items you own that you don't need. This can be done through a garage sale, Craigslist, e-bay, etc.
  
  
• If you are creative, sell your "product" online.
  
  
• Generate extra "income" by getting rid of the luxuries in your life that add extra costs. Examples include getting rid of cable, getting the most basic cell service, getting basic internet service or remove the internet service all together, etc.
  

[blackcard]

I used the smallest debt approach and it worked perfectly. Only debt now is our mortgage. Don't know who Dave Ramsey is though.
Additional income? Graduated college and obtained a much higher paying job.

[Peace77]

Additional tips:

Pay online or use your bank's Bill Pay service. You save $5.60 per bill per year in postage. You also save the cost of your checks and envelopes.

Pay the bill as soon as possible. If you pay a credit card bill as soon as the new billing cycle starts, you reduce your average daily balance and will owe less interest the following month.

Paying the bill as soon as possible also avoids the problem of late fees incurred when your payment arrives a day or even a few hours late.

Do it yourself. Many times you can save a lot of money by doing something yourself. If you aren't sure, ask. The staff at the auto parts store and home improvement stores will help you.

Shop around for the best price.
You can do this on most everything you buy including gas for your car. I use GasBuddy.com to find the best price.

Don't leave home without your thermos, water bottle, lunch, and snacks. Having your own home-packed meal, drinks, and snacks takes away the temptation to stop for a coffee, drink or restaurant meal.
The savings add up fast and can give you more to apply to your debt.

Buy on sale. There's no sense in paying full price for something you will need.

Plan ahead. Don't wait until you've used your last envelope, light bulb or roll of toilet paper to start looking for a sale.

[paynointerest]

Aug 25, 2011 11:15:57 GMT -5 Peace77 said:

Additional tips:

Do it yourself. Many times you can save a lot of money by doing something yourself. If you aren't sure, ask. The staff at the auto parts store and home improvement stores will help you.

Check out this website - I saw it on another thread.

www.repairclinic.com/

Shop around for the best price.
You can do this on most everything you buy including gas for your car. I use GasBuddy.com to find the best price.

Most grocery stores publish their weekly sale flyers online. It is easy to check out which stores are having sales so you can stock up on shelf-stable items or buy fresh fruits and vegetables in season.

peace77 Thanks for posting these extra tips!