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Pay Down Your Debt Fast: The Snowball Effect

Pay Down Your Debt Fast: The Snowball Effect

    Paying for school sucks.

    You end up getting a decent education (maybe), but come to quickly find out that most of what you learned is not exactly everything you need in the real world. In fact, you may find that you learn more in the first six months at your new job than you did during your entire time at school!

    What hurts worse is that most people, at least in the US, are paying more every year for school. This means larger and larger amounts of education debt as well as consumer debt. Think of all that pizza!

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    But, the size of your debt doesn’t have to scare you. Trust me; it scared the hell out of me for a while. This is how I dealt and continue to deal with it.

    Budget

    A debt snowball doesn’t work without a good budget in place. I know that this may be the last thing that you want to hear about getting rid of your debt, but seriously, it won’t work without a budget. I didn’t realize the strength of budgeting until I got on the You Need a Budget bandwagon and followed that “system.” This helped me see my life in the form of item buckets and a “Buffer” so I could get close to being a month ahead on all my bills.

    Having this leeway in your money is the first step to trying to find the little extra each month to pay down your debt fast. When you have the month buffer sitting in front of you, you can more realistically and with less fear, approach paying down your debts.

    Make the list

    Next, you need to know the exact amount of each of your debts as well as their interest rates and minimum payments. After you get this information you can make the list in either two forms:

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    1. In order from lowest to highest amount.
    2. In order from highest to lowest interest rate.

    To be honest, most people will tell you to pay the highest interest rate debts first. That makes sense for the most part, especially if you want to save money with some debts with ridiculously high interest rates. But, I chose to pick my lowest amount first.

    Why?

    Because I could get satisfaction of paying off one of my debts and see the effects of the debt snowball faster. That’s all.

    You should take it by a case to case basis though. Try to weigh how much you owe against the interest rate to see which method is better. You may even need to approach it a different way, like if you have a very low debt amount with a super high interest rate and a huge debt amount with a mediocre interest rate. You have to see which way you are paying more money in the long run, then avoid that way.

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    The law of three

    After you know your minimums and add them and everything else you need in your life to your budget, you should have some shillings left. If you don’t, this isn’t the post to tell you how to make more money. Instead, try to stick to the absolute essentials in your budget. If you have entertainment money; cut it. We will create some of that shortly.

    Now that you have some extra money un-budgeted for the month, you have to split it into three equal pieces for:

    1. Savings
    2. Debt
    3. Fun money

    Some debt gurus will say that you shouldn’t have any fun money, you should strictly concentrate on paying down debt and saving. I say, “screw that,” that is unless you are in dire straights and need out of debt in a hurry.

    This extra money you have for debt, that is the money that you will put on top of your minimum payment to your first debt in the list you made above. Once that first debt is payed off then you will move the minimum plus the extra money for debt to the next debt payment and so one.

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    See it? A snowball!

    Here is what is awesome. None of this accounts for you making more money during the month. As soon as you start pulling in any more money, you can throw it towards you debt, or use it as more play money, or buy some pizza. It doesn’t necessarily matter.

    Now calculate

    You can do this on paper, if you are like a crazy mathematics ninja, but I prefer the digital way because it is easier to keep track of and idiot proof. One of the best ways that I have found that works on Mac and PC is with the trusty ol’ Vertex42 Debt Reduction Calculator Spreadsheet. I first saw this thing mentioned on Get Rich Slowly in 2006, but it still holds true today. Since then I have migrated to an iPhone app called DebtPayoff Pro that is great. There are many more out there, but these are the ones that have worked well for me in the past and present.

    Now that you have a tool you can enter all your debt information, how much money you are going to throw extra toward your debt, and the starting balance date. Then you can get an idea of when certain debts will be paid off as well as when the total debt will be paid off. If you are putting away a decent amount of money extra toward debt, you are going to be very surprised at just how fast your debt diminishes.

    Now party

    Paying down your debt fast can feel like the biggest burden in your life, especially if you have a lot of it. The truth of the matter is, if you can cover your minimum payments right now and have a little money extra every month, you can put a serious hurtin’ on your debt.

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    Published on October 8, 2018

    13 Incredibly Useful Tactics to Help You to Stick to Your Family Budget

    13 Incredibly Useful Tactics to Help You to Stick to Your Family Budget

    Are you having trouble sticking to a family budget? You aren’t alone.

    Budgeting is difficult. Creating one is hard enough, but actually sticking to it is a whole other issue. Things come up. Desires and cravings happen. And the next thing you know, budgets break.

    So how can you stick to a family budget? Here are 13 tips to make it easier.

    1. Choose a major category each month to attack

    As the saying goes, “Rome wasn’t built in a day.” With that in mind, one approach to help you get into the habit of sticking to a budget is simply starting slow.

    Spend too much on Starbucks runs, eat out too often, and have an out-of-this-world grocery bill? Choose one bad habit and attack.

    By choosing one behavior to focus on, you’ll prevent yourself from being overwhelmed. You’ll also experience small victories, which help you gain positive momentum. This momentum can then carry over into your overall budget.

    2. Only make major purchases in the morning

    If you’re making large purchases in the evening, there’s a good chance you’re doing so after a long day and you’re probably tired.

    Why does this matter? Because our judgement tends to be off when tired – our willpower is compromised.

    Instead, only make major purchasing decisions in the morning when you’re energized and refreshed. Your brain will be firing on all cylinders and your resolve will be high. You’re less likely to give in and settle at this point.

    3. Don’t go to the grocery store hungry

    Have trouble with impulse buys at the grocery store? If so, there’s a good chance you’re going grocery shopping while hungry.

    The problem here is that when you’re hungry, everything looks good. So you’re more likely to make split decisions on things that aren’t on your grocery list.

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    Instead, make sure you eat prior to your grocery store trip. Then take your list, along with your full stomach, and go shopping. Notice how food doesn’t look quite so good when you’re not fighting cravings.

    4. Read one-star reviews for products

    Is there a product you just have to have (but maybe not really)? Check out the one-star reviews.

    By reading all the horrible reviews, you may be able to basically trick yourself into deciding that the product isn’t worth your time and money.

    Next thing you know, you didn’t make the purchase, you saved the money, and you feel good about the decision.

    5. Never buy anything you put in an online shopping cart until the next day

    If you are making a purchase online, it’s typically a two-step process. First, you click “Add to Cart” and then you go in to review your cart and pay.

    The problem is that there not typically much reviewing during step two. It’s generally click pay and there you go. However, this is the perfect point to stop for reflection.

    Once you add to your cart, your best bet is to step away until the next day. Let the item sit there and grow cold, so to speak.

    This gives you a night to “sleep on it” and decide if you really want and need to spend that money. If you wake up the next day and still find the purchase viable, then perhaps it’s time to go for it.

    6. Don’t save your credit card info on any site you shop on

    One of the other pitfalls of shopping online is that fact that most sites ask you to save your credit card information.

    While the sites will frame it as a method of convenience, the truth is they know you’ll spend more money in the long run if your credit card information is saved.

    The “convenience” takes away one last decision-making point in the purchasing process. True, it’s a pain to get out your credit card and enter the information every time. But guess what? That’s the point. If that inconvenience helps you stay on budget, then it’s worth it. Which leads into the next tip.

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    7. Tape an “impulse buy” reminder to your credit card

    Credit cards make spending much easier than cash. When you spend cash, you can literally see your wallet emptying. A credit card comes out, then goes back in. No harm, no foul.

    That’s why it’s a good idea to tape a reminder to your credit card. Customize a message that is something along the lines of “do you really need this?” or “does it fit the budget?”

    That way when you pull out the card, you get one last reminder to help you question your decision and stick to your budget.

    8. Only use gift cards to shop on Amazon

    Amazon is probably the easiest place online to blow money. It’s just so easy to click and buy. However, one way you can slow the process down is buy only using gift cards. Here’s how it works.

    If you plan on making a purchase on Amazon, go to the grocery store and purchase a pre-loaded Amazon gift card of the proper amount. There’s no convenience fee, so you literally pay for the money you’ll spend.

    Now take that gift card home and load it to your Amazon account. There’s your money to spend.

    Why does this help? It makes you have to purposely go to the score and purchase the card in order to purchase the item. That’s a pretty deliberate thing that takes some time, commitment, and thought.

    This process will effectively kill the impulse buy.

    9. Budget using cash and envelopes

    As mentioned earlier, it’s a lot harder to spend cash than swipe a credit card. You can take this even farther by using only cash, and separating that cash by budget category.

    Create an envelope for each category and stick the cash in there at the beginning of each month. When the envelope is empty, no more spending on that category, unless you borrow from another (be careful of that approach).

    This can be pretty helpful for people that have a hard time following transactions in their checking account, or keeping a budgeting spreadsheet.

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    The envelopes simplify the tracking process, leaving no room for error. Nothing hides from you because it’s tangible in the envelopes in front of you.

    10. Join a like-minded group

    Making the decision to stick to something like budgeting is difficult. It takes long-term commitment.

    You’re going to feel weak sometimes. And sometimes you may fail. That said, support from others can help strengthen resolve.

    Support can come from a spouse or a friend, but they won’t always have the exact same goal in mind. That’s why it’s a good idea to join a support group that’s likeminded.

    No need to pay here, as there are tons of free communities that fit the bill online.

    For example, reddit has multiple subreddits that deal with budgeting and frugal living. You can follow, subscribe, and get active in those communities.

    This will open your eyes to new tips and strategies, keep your goal fresh on your mind, and help you realize there are others dealing with the same struggles and being successful.

    11. Reward Yourself

    When you set a budget, it’s usually with a large goal in mind. Maybe you want to be debt free, or perhaps you want to see $10,000 in your savings account.

    Whatever the case, the end goal is great, but the end is often far away, making it hard to see the end of the tunnel.

    With that in mind, it’s a good idea to set mini-goals along the way. This helps you still look at the big picture but have something that’s attainable in the short-term to help with momentum.

    But don’t stop there – set rewards for yourself when you reach that small goal. Maybe it’s an extra meal out. Or a new pair of shoes.

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    Whatever the case, this gives you something in the near future to look forward to, which can help with the fatigue that can result in pursuing long-term goals.

    12. Take the Buddhist approach

    You don’t have to be a Buddhist to recognize some of the wisdom in the teachings. One of the tenets of the philosophy involves accepting that we can’t have everything we want. And that’s okay.

    Sometimes you won’t feel good. Sometimes you’ll have cravings. You can’t deny them. But you can recognize them, accept them, and let them pass by. Then you move on.

    Apply this to the times you want to do things that will break your budget. You’re going to have the desire to eat out when you shouldn’t. You might want to stay out and spend too much at happy hour with your work friends.

    The feelings will come. Recognize them, accept them, but let them go.

    13. Set up automatic drafts to savings

    If you wait until you’ve spent all your budgeted money to deposit money into savings, guess what? You probably aren’t going to put any money into savings.

    It’s too easy to see that as extra money and end up using it to treat yourself.

    Instead, set up automatic savings withdrawals. That way, the money is marked and gone before you can even think about it. It becomes a non-issue. It’s no longer “extra.” It’s just savings.

    Conclusion

    Sticking to a budget can be difficult. No one is denying that.

    However, if you can do a few things to set yourself up for success, and put some practices in place to curb impulse buys, then you can (and will!) be successful sticking to your family budget.

    Featured photo credit: rawpixel via unsplash.com

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