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If You REALLY Want to Save Money…
By wahms | October 30, 2008
I’ve saved the best for last. This one is a long-term strategy, but it also has the best bang-for-your-buck.
If you really want to save money, you need to 1) rid yourself of your consumer debt. And 2) keep it that way forever! When I say consumer debt, I am referring to a credit card debt, lines of credit, personal loans, car loans, etc. Pretty much everything but your mortgage.
Photo by materialboy
As a society, it seems that we’ve been programmed to believe that debt is a necessary part of life. Everyone has debt and there is no way to survive without it. HOGWASH! We simply need to evaluate what is truly important to us, learn to have patience and work toward our goals and have the will-power to see our plan through.
“But I’m so far in debt, I’ll never see the light!” you say.
Well, guess what? 18 months ago I owed $35,473 in consumer debt. Today, that balance is $11489! That’s a 67% reduction! I’m well over halfway there. If I can do it, so can you!
So, how did I do it? What you need to do is list out all of your credit debt from smallest balance to highest balance. Beside each, write in your current monthly payment. For example:
| Macy’s Card | $1200 | $50 |
| Visa | $2300 | $75 |
| Car Loan | $8700 | $350 |
| Line of Credit | $11000 | $300 |
OK. Now, an important point to note here is that (for credit cards especially) making the minimum monthly payment only will never ever pay off the debt. You’re barely paying the interest. We are going to do this part of the time, but you will see that it will work to pay these debts down very quickly anyway. Read on.
So, with the above example, what we are going to do is work at eliminating these debts, one by one, starting with the smallest one.
- First you are going to put as much as you possibly can spare on the Macy’s card while making the minimum on the others. Make frequent payments on this Macy’s card – if you get an extra $20, put it on there right away. At the very minimum, pay as much as you can every payday.
- As soon as the smallest debt (in our example, the Macy’s card) is paid, get rid of it. Cut it up. Store credit cards are evil! The interest rate is usually anywhere from 18% to 28%! You don’t need it.
Photo by SqueakyMarmot
- Now, I want you to make note of what you were paying on your Macy’s bill each month. Let’s say it was around $75. (In addition to the $50 monthly payment, you were able to put around $25 extra on it each month.)
- Your next step is to take that $75 that you have been paying on the Macy’s card and put it on the Visa, IN ADDITION to the regular monthly Visa payment. So you are now putting $150 on the Visa, plus any extra that you happen to get your hands on.
- Now, once Visa has been paid off, you may not want to cut it up if it is your only credit card. It is good to have a credit card for emergencies and once you learn Part 2 of my plan, for occasional use. So let’s put the Visa away where you can’t get at it easily. Some people suggest freezing it in a big block of ice in your freezer. That way you’ll be less apt to fall into the trap of impulse buying. You could put it in a safe deposit box, a safe, hide it somewhere, whatever works for you. Just don’t carry it around everywhere you go.
So no we now have Macy’s and Visa paid off. Are you starting to feel good about this? Exciting, isn’t it?
- Next we are going to do the exact same process with the car loan, and then with the line of credit. Take the $150 plus whatever else you can spare and add it to your car loan payment. (You may not be able to do this yourself online or at an ATM, but you can go to the bank, or call them, anytime you want and tell them you want to put an extra principal-only payment on your loan.)
By the time you get to the Line of Credit, you will be putting at least $500 in addition to our regular $300 on it every month! That is going to be paid off in no time! And guess what? Believe it or not, this becomes rather addicting after awhile! I know that I started to get really into this – the first thing I do as soon as I get paid is put as much as I can on the debt I am working on. It feels so good to watch that balance go down every month!
This really works, guys. I have paid off almost all my debt (close to $24,000 in 18 months by trimming my spending and following this exact plan. In less that a year from now I will be 100% debt-free, excluding my mortgage! (But I have a plan for the mortgage too! )
Stay tuned for Part 2, where I explain where to go from here.
Any Comments, Questions, Suggestions are welcome!
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October 30th, 2008 at 11:44 am
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October 31st, 2008 at 3:25 pm
Hi, just came across your blog. Lots of good info here! We also write a get out of debt/frugal blog. Feel free to check it out at http://engineeradebtfreelife.blogspot.com/ (Engineer a Debt Free Life).
Good luck with your blog and with becoming debt free!
Momma
feature blogger at http://engineeradebtfreelife.blogspot.com/
October 31st, 2008 at 3:25 pm
Hi, just came across your blog. Lots of good info here! We also write a get out of debt/frugal blog. Feel free to check it out at http://engineeradebtfreelife.blogspot.com/ (Engineer a Debt Free Life).
Good luck with your blog and with becoming debt free!
Momma
feature blogger at Engineer at Debt Free Life