Ways to pay off debt faster

Kelly at Thrifty Mommy wrote a great article on 20 ways to pay off debt faster.

I do not have credit card debt – I never had it and hopefully never will have it.  I do use credit cards, but I make sure to pay them in full each statement.  The last few months I have taken this a step further and pay the charge online as soon as it appears on my account.  I do however have a car loan, a home equity line of credit and a huge school loan of my DHs.  Currently I am working on paying off the car loan (this is the smallest of the three) and hope to have it paid off by fall. 

Here are some of my thoughts on the items on her list I am currently doing:

1. Create a budget and stick with it!
For budgeting, spreadsheets seem to work the best for me.  I have tried Quicken and Microsoft Money in the past and basically only used them to balance my checkbook.  I never really used it to track a real budget.  The last few months of 2006 I started using a spreadsheet I created myself and as of January 2007 I am currently using PearBudget.  It is a spreadsheet based budget system.  I added a few additional spreadsheets to the workbook to track my checking account and to categorize the money in my online savings account. 

2. Figure out why you are in debt in the first place. Do you spend more than you take in? Do you eat out too much? Do you have an addiction that is killing your financial freedom like shopping? Get an accountability partner to hold you accountable to stop whatever you are doing.
When I was figuring out where my monthly budget numbers need to be I found the following items were killing my financial freedom:

    Lattes
    Buying the girls toys/clothes when they have way more than they currently need
    Eating out for lunch
    Going shopping for entertainment when nothing else was planned for a weekend. This usually involved eating out also.

None of these items were a lot of money at once, but added up, they were making me spend more than I made. 

4. Live within your means. This will help you keep from getting into more debt.
That is what the budget is all about.  If you don’t have the money – don’t buy it.

7. Use the envelope system. Budget a certain amount for entertainment, eating out, groceries, etc. and put the cash in an envelope. When the money runs out, you are done for the month. It really works.
I totally agree – this does work.  I do a very simplified version of the envelope system.  I take out between $100-$150 each week and put the money in my wallet.  This is my household money for the week – groceries, gas, miscellaneous\target items.  I tell people that I use a cash for these types of purchases and I always get the same response “I can’t keep cash around, otherwise I will blow it.”  In order for this to work for you – you may need to change your attitude about cash.  Once the cash is gone, you are done spending for the week.  It helps to also remove any ‘backup’ methods of payment when you first start doing this.  Take your checkbook, ATM and credit cards out of your purse when you go shopping.  You will start thinking twice about picking up that bag of chips you don’t need or the shirt that is on “sale” at target.  You won’t want to be embarrased at checkout that you don’t have enough money to pay. 

8. Don’t cut every form of entertainment out. This will surely be your downfall as you will not stick with it.
Each time I take cash out for household, I put a $20 bill in the “Fun Money” bank.  We use this for ordering pizza, eating out, or other entertainment.  I also put any extra cash\change from my household purchases that I didn’t use. 

13. I do not recommend cashing out your savings totally. Usually, if you are in debt, you don’t have any savings. But if you do, knowing that you have a small cushion in case you get in trouble makes you rest a little easier.
I left 1500 in my savings account for “emergencies” and used the remainder – a little over 1,000 to pay off my own school loan and a small medical bill.  Any extra money I have at the end of the month for being under budget goes half to debt and the other half to building my savings back up. 

19. Try to go to the grocery store and Wal-Mart only once a week. Little trips to the store add up and will kill your budget.
I plan my meals a month at a time and only go to the store once a week.  I try to do the Target trips even less – 1-2 times a month.  These are the stores that kill me. 

These are two items I am not sure I agree with 100%, but I do understand where she is coming from:
9. Cut up all but one credit card to start with. I hate credit cards to begin with because they get you into trouble faster than you can blink. Keep one paid off for emergencies and have a low limit on it. The credit card companies will try to increase your limit so you can spend more. Just decline the increase and stand your ground.
If the credit card asks increase your limit – let them.  This will help your credit scrore.  Just don’t use your card!

12. Do you have equity in your home? Using the equity to get one lump sum to pay off might be more financially responsible as you would probably have a lower interest rate and can deduct the interest on your taxes.
Kelly is correct, you can deduct your home equity interest on your taxes.  However, if something happens where you can’t make your payments, you could lose your house.  Credit card debt is unsecured – they can’t take anything away from you if you don’t pay.  I have friends that buy their vehicles with their home equity account.  It is very tempting (and I am not saying I will never do this).  If you default on your car loan – you just lose your car.  You default on your home equity loan – you could lose your house.

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2 Responses to “Ways to pay off debt faster”

  1. kellys Says:

    Thanks for the mention. You have some great ideas to go with it. I really need to do better about planning my meals. It would save me a lot of money!

  2. Karen is Thrifty Says:

    You mentioned #9. My husband and I have an awesome credit score, but now that I think of it, if we’re debt free, have an emergency fund, and are paying cash then we won’t need a good credit score. I see your point though. We’re not yet to a place where we don’t need credit.

    I don’t agree with #12 either. The interest on that amount of money over the length of 30 years . . . yikes!!!! Ugh. I’m so glad we’re almost out of debt so that I don’t have to worry about this stuff anymore. 🙂

    Kelly has some good stuff in her article. Thanks for mentioning Thrifty Mommy.

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