Hi friends! Here we are talking money again! So far this month we have discussed some small steps in taking control over your finances. Be sure to go back and re-read those posts as often as possible.
After you have completed the tasks of budgeting, it is time to setup a system and stick with it. A lot of people prefer a cash only system. So if you budget $100/week for food, then you literally put $100 cash aside for food. You aren’t allowed to spend over the budget. If you spend under, SCORE! You can use the excess in another budget line or add it to the “debt pay off” jar.
Now that we have setup the budget, let’s pay off some debt! Here are some debt tactics:
- You must have more income than expenses to pay off debt. Otherwise, you are simply creating more debt. Once you have setup the budget and cut the excess in your spending, all extra income should be applied towards debt.
- We chose the SNOWBALL effect for debt pay off. There are several ways to do this. Write down all of your loans. Include total payoff amount, interest rate, and monthly payment. You can order them by highest interest or total loan amount. We chose total loan amount from least to greatest. For us, tackling the smaller loans first gave us the excitement of actually paying something off quickly. Every time we paid off another loan, PARTY! Success = let’s do that again!
- You can NOT pay off debt by only making the minimum payment. Once you have made the list of debts, choose the first one to pay off. Whatever extra money you have in the budget for debt pay off, apply it ON TOP of the monthly minimum payment for your first loan. All of the other debts should be paid at minimum. For example:
Loan Name Min. Payment Total Loan Extra to apply Sears $50.00 $1,000.00 $75.00 Car $250.00 $10,000.00 House $800.00 $150,000.00
- If you use the example above, you are applying your extra money to the Sears loan each month and keeping the minimum payment on the Car and Home loan. Your total payment to Sears each month is $150. Once Sears in paid for you now SNOWBALL the payment made on your first loan (Sears) to the next loan (Car). Once the second loan is paid for you SNOWBALL the 1st and 2nd loan payments to the third. The cycle continues until all debt has been paid for.
- What happens if you get a nice bonus or win the lottery or find cash laying around? APPLY IT TO DEBT! Pretend that you never even had it to begin with. Keep paying off the debt!
This process reminds us again to be good stewards with what God has given us. If I am swimming in debt, I am not being a good steward. I must make changes! God does not desire for us to be a slave to the lender. He does not desire all the heavy weighty things that come with having a yoke of debt tied around us. There is so much freedom to be found in not owing anyone money! You can do this in 2019! I believe in you!