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“Reducing Debt” Archive
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This guest post is from Ryan at Debt Reduction Forumla. He’s currently is reducing his debt from $75,000 to zero and letting you look over his shoulder. If you like what you see here, stop by his blog or you can subscribe to his feed here.
This is the first guest post I’ve written for Tricia. So I spent a few days thinking about a title that would get your attention.
That’s when I came up with “B.A.D. Ways to Reduce Debt.”
Of course, B.A.D. stands for Blogging Away Debt.
To write this post, I went back through a number of Tricia’s blog posts to see what strategies she has personally used to reduce her debt during the last two years. Here are the three debt reduction strategies I came up with, along with how I’m using those same strategies.
Strategy #1: Create accountability.
When Tricia began her debt reduction journey, she started this blog to create accountability. I took a similar approach when I started writing Debt Reduction Formula. I did it, in part, for accountability.
But a blog is a lot of work, especially if you want to attract regular readers. What’s a busy person to do?
At first, I simply created a spreadsheet that listed all of my debts, their interest rates, and minimum payments. This created personal accountability because I had to acknowledge my debt problem and see whether it was getting better or worse each month.
I continue to update that spreadsheet every month to see how much progress I’m making.
Even personal accountability like this goes a long way toward keeping yourself motivated. (And, trust me, you WILL need something to keep you motivated as you pay down your debt.)
Strategy #2: Minimize finance charges.
Another debt reduction strategy Tricia has used is minimizing her finance charges by looking for the lowest interest rates possible.
In one post, Tricia shares that she called around to credit card companies to get rate reductions, paid off as much debt as she could to improve her credit score, acted on balance transfer offers when she received them, and even took advantage of a Prosper loan at one point.
We’ve all heard about minimum payments. But, if you’re like me, you may not have thought in terms of minimum finance charges. (I think I finally stumbled upon this concept a couple months ago.)
Let’s say you have monthly minimum payments of $800. If you look at how much interest you’re paying, you may discover that $600 of the total monthly minimum is going to interest!
By reducing finance charges, you free up more money to pay down principal, which accelerates your debt reduction.
Like Tricia, I’ve gotten reduced interest rates on a few credit cards. And I, too, recently got a Prosper loan to consolidate two loan balances. By doing this, I literally slashed my interest rate in half. (I’m now paying 11% instead of 22%.)
Strategy #3: Throw extra money at debt.
Perhaps this seems like a no-brainer.
But think about the “economic stimulus check” most folks will get this May/June. No doubt, some people will use it to pay off debt. But many people will spend it on a new widget or doodad.
A close friend and I were talking, and we speculated the number one purchase this economic stimulus money will be used for is… a new flat-screen TV.
Not debt reduction.
Tricia writes that 100% of their 2005 tax return was used to reduce debt in 2006. And while it’s easy to admire that kind of commitment, it’s hard to put it into practice.
Currently, I’m also using extra money to pay down debt. Where does it come from?
Since I’m self-employed, I have periods of time when I’m cash-rich and other when I’m cash-poor. So whenever I get paid a project fee, I take whatever portion I can to pay down debt.
I’m actively pursuing different ways to grow my business so I’ll have more cash to throw at my debt. Not to mention, I recently received an unexpected inheritance, which I’m using to reduce debt as well.
So tell me: what B.A.D. ways to reduce debt have you personally used? Leave a comment below.
Thanks Ryan for the guest post!
I’m a little late on this week’s links. My husband got sick on Thursday and I followed on Friday night. Saturday, the both of us were quite miserable and I even took a five hour nap. I’ve been feeling a little better today, but still not back to normal quite yet.
We are also experiencing some bitter cold weather. The blizzard conditions outside even lead to the closure of a part of the main highway. That doesn’t happen very often. So, we ended up getting sick on a good weekend to stay put in the house.
Anways, here are some links that I found interesting this week:
Jim at Blueprint for Financial Prosperity has a couple copies of TaxCut Online to give away.
MyMoneyBlog gives some info on how you can get paid to interview for jobs. Pretty interesting!
Lastly, NCN shares how he has been a debt-free blogger for two years. One day, I hope to join the ranks of being a debt-free blogger 
I received the following email from a reader who wished to stay anonymous. Even though I talk a lot about getting to the point of being debt-free, it’s always nice to hear the story of those who have basically made it.
“I too owed quite a bit of money on not one but two credit cards, about $22,000 to be exact. I noticed that even if I paid the minimum every month on each credit card I never saw any major debt eliminating results. So what I did for a time, knowing that I was a committed payer to the credit card companies was to call the credit card company from time to time and always was able to negotiate a reduction in the interest owed on the amounts. At least, the credit card companies were willing to work with me. I optioned to increase the amount of money to pay out at the billing period. In other words, I began to pay more than the minimum for a couple of months.
Mind you my method was not based on any scientific fact just based on the notion of what if. By the way, all this time that I was making all of these payments the credit cards were in the possession of the local garbage dump. The minute I got a credit card. I mutilated it beyond recognition. One more thing that I forgot to mention earlier I also authorized the bank to directly deposit the required amount for payment to the credit cards thus avoiding any late fees or penalties incurred with late payments. The next thing that I did was to look at the credit card interest rates and decided to consolidate the credit cards into one. Now why didn’t I do that in the first place you may have asked. One financial immaturity and two not really knowing that most of the money that I had forwarded to the credit card companies was going mostly towards those darn high interests.
I just happened to start a new job that paid slightly more than I had been making. But the best thing of all the new company had a credit union. Well now, here is where I got savvy. The first thing that I did was to get a part-time job that I worked at one day a week. The next thing that I did after I got the part time job was to have the money from the part time job direct deposited into the credit union. I also gave myself specific instructions not to touch the credit union money for any reason for a period of about two years. By the time I had been employed at that company with access to a credit union I had whittled the credit card amount to about $10,000. This was, of course, without any outside intervention other than a lot of saving and self-control.
Gee! One fine day I get this notice in the mail telling me that the credit union offered a credit card with zero percent interest for a period of six months. I had been saving money into the credit union account for almost two years. Oh! by the way another fine little detail that I forgot to add, I had also asked that a small part of my regular 40 hour work week pay-check go to the credit union as well, about $200 a month to be exact.
So now to put the simple math equation in motion. The part time job paid me a little over $200 a month and I had asked for my employer to put aside $200 a month from my regular job. All totaled to about $400 per month on the side untouched. By the time I transferred the credit card amount to the no interest bearing account I owed about $8,000. But I had an monetary ammunition garrison of about $9800.
Now instead of paying all in one lump sum I felt that it would be best if I established some sort of good standing with the credit union and credit card company. And of course I did not want to pay all of the money out and not any left for an emergency. When the first credit card statement came from the credit union it asked for $22. I transferred $1,000 & some months I gave $500 others I gave $750. With in the 6 months offered interest free I had paid all that I owed. At the current moment I owe again about $800 but now I still sufficient assets to pay what I owe in one shot. I have also limited my credit card spending to to no more than $1000.”
Congrats are in order to this reader who has managed to really pay off some debt. The method used isn’t one that I’ve ever read in a book, but it worked (if you remember, I’m a believer in taking things from here and there and making a plan that works for you). This reader had a plan and self-control and made the debt go away.
Back in my archives, there are some posts I wrote that I thought I would highlight occasionally and add some more of my thoughts since I’ve been learning more about these things.
Today I’m highlighting a post I did about calling your credit cards to reduce your interest rate. I actually wrote down how that call went with dialogue from me and the credit card customer service rep. Needless to say, that one didn’t go well. Looking at how I did it, I think I may have been a tad too aggressive and I probably should have asked to speak with a supervisor. When you call and talk to customer service, try to be pleasant and respectful. I think my call crossed the line a little bit. Thinking back to my days of working at a grocery store, I always was willing to go out of my way to help those who were nice to me.
Even though I rarely had success with trying to call to reduce my interest rates, it doesn’t hurt to try. While you are at it, you can also try to reverse late fees. A call will likely only take 5 or 10 minutes depending on how long you are on hold, and if the call is successful than it was some time well spent.
Waking up every morning and deciding that we will not go out and spend money is not an easy task. It takes a lot of motivation to look at the money we have as a way to get out of debt rather than a way to have something we “want.” But somehow, after a year at this, I’m still holding strong and I think I owe a great deal of gratitude for the people/things that motivate me.
There are the sources of motivation that started me on this journey…
Back in April of last year, I sat down and wrote a list of 10 things that keep me motivated to become debt-free. I still do all of those, but as the days are turning into years I am finding that I zero in on certain ones.
Like the sources of motivation that are always there…
My son. My husband. My mom and dad.
Those four people are more than my family, they are the reason that I can do things when I set my mind to them. They are my inspiration for so many things in my life. Whether it’s trying to be a good person or paying off our debt - they are right there with me with unconditional love. They make me want to succeed.
Then there are the stories of others…
Whether it’s stories from other bloggers who are now debt-free or those who are working towards it. I look to their stories for inspiration.
Then there are quotes…
I love quotes and one of my favorites is this one here. It’s amazing what the written word can inspire you to do.
Then there are times where I look everywhere for some motivation…
I look at things differently now. Every movie or show I watch or story I read I look for inspiration. Like how a horse is inspiring me to reduce our debt or how a chipmunk is being frugal.
Last, but definitely not least, I have this blog…
This blog has played a major role in our debt reduction. Writing about our finanical situation daily keeps me focused and the comments of others help to keep me motivated. I do want to see the day I can come on here and write in huge bold all cap letters that I am credit card debt-free. I want to go outside and shout it. I want to hug a stranger on the street and tell them I am credit card debt-free. Okay, maybe I won’t hug a stranger, but it will be a very happy day.
Now that I’ve shared where I get my motivation…what about you? Would you like to share?
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Continuing your education can help you get a job in finance with your online finance degree! Don’t let your busy schedule keep you from attending online colleges!
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I’ve been receiving some comments and emails asking where do you start when it comes to reducing debt so I thought I would write a post telling what we did.
First things first, we calculated the total damage. This is a sobering step, but once you finish it you have a better idea of where you stand. We listed all of our debts with columns for creditor, balance due, interest rate and minimum monthly payment. This can be done on the computer or with pencil and paper.
I also took a look at how much we were paying for finance charges. When I first started this blog, we were paying over $400/month in finance charges. That was $400 a month that we could have for other things in life if we didn’t have our credit cards. I used that as motivation.
Once you have all of your debts listed, there are two popular ways to start paying them off.
1.) List your debts from the highest interest rate to the lowest interest rate. Pay the minimum payment for all debts except for the one with the highest interest rate. That debt you pay as much as you can towards. Once that debt with the highest interest rate is paid off, you tackle the next debt in the list.
2.) List your debts from the smallest to the largest balance. Pay the minimum payment for all debts except for the one with the smallest balance. Pay as much as you can to that debt. Once that debt with the lowest balance is paid off, you takle the next debt in the list.
If you choose to go with #1, you will end up paying less interest in the long run because you are getting rid of the balances with the higher rates first. But sometimes the balance with the highest interest may be your largest balance. It may seem like its taking forever to get it paid off.
That’s the appeal of #2. By paying off the smaller balances first, you are seeing progress quickly by paying off entire balances. That can be a big boost to your self-esteem with your debt reduction plan.
For us, we are doing a combination of the two. For the most part, we have been tackling the debt with the highest rates but we have paid off other debts first. I think the main thing is to decide on a plan that works for you and you stick with it. Committment to becoming debt-free is a big factor. Without that, both of the plans above will not work.
I’ll talk about where my motivation comes from in a later post. I started making a list, and I am amazed where all I am pulling inspiration/motivation from.
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If you’re stuck with huge loans look into private student loan consolidation! Don’t let the burden of college loans keep you from continuing your education. Find a payment plan that works for you!
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Darren Rowse at problogger.net is having a group writing project and wants submissions in list form. I was trying to think of what I can write about and then it hit me - I don’t have a post yet that lists everything that we are doing to make a dent in our debt.
So, how did we go from over $37,614 in credit card debt to $28,623 in less than 6 months on an income of $45,000/year?
1.) Number one thing - change the attitude! Things didn’t start happening for us until we started thinking positive and started believing that we could make this happen. A positive attitude leads to positive results. Whenever I start feeling blue, I try to remember to repeat that phrase to myself.
2.) We removed all credit cards out of our wallets and put them somewhere safe in our home but also a spot where they are not easy to get to. Some suggestions I’ve heard of are to freeze them inside a water-filled container or lock them in a safe.
3.) We track where our money is going. I use Quicken to track everything and we rarely use cash. Not having cash makes it easier to track things. (If you don’t have Quicken, you can do this using a pencil and paper.)
4.) We found places to agressively cut spending. One of the easier expenses for us to cut has been in household spending. I no longer purchase things to decorate or furnish the home. We are doing fine with what we have and I have learned that we do not need more. One of the hardest is groceries and dining. I’m still working on that one. Overall, we are taking drastic measures to spend as little as possible so more money can go towards debt.
5.) We are working on increasing our income. I have been furthering my education with some classes to earn more at work and my husband is working hard to get his business off the ground. We are trying to increase our worth, myself as an employee and my husband as a self-employed individual (hopefully soon ;))
6.) We use any extra money towards debt. For our tax return this year, it all went towards debt. The income that I will make from my blog will go towards debt. Basically, if it’s not from a paycheck it immediately goes towards debt. I’m also always on the lookout for ways I can make a few dollars here and there (surveys, selling things, etc.).
7.) We worked to reduce the interest rates on our credit cards. This one wasn’t that easy when we started out paying off our debt. Some people can call their credit cards and get their rates lowered. I wasn’t one of them until I started knocking down the balance on the credit card. Then they listened. For more on this one, visit my post here. We also used balance transfers to shift debt around at lower rates and even tried prosper.com to refinance some of our debt.
8.) We figured out our gameplan. We listed our debts and figured out which ones were were going to pay down first. All extra money was shifted towards that debt. There are many different methods one can use (like pay the lowest balance first or even the highest interest rate balance) but remember you have to do what is right for you! We actually are paying attention to a few things with our plan: our credit ratings (trying to keep debt equal between my husband’s accounts and my accounts) and trying to not have too many balance transfers going at the same time due to the risk (like how one minor late payment can skyrocket the interest rate).
9.) We calculated a goal date. I was a little hesitant to do this one, because I didn’t want to set a date and then not make it. But I am finding that the date is keeping me motivated. May 2009 here we come!! 
10.) We are not gonna give up!! There will be times we slip. We sure did end up spending a lot for dining last month and of course I feel bad about it. But it sometimes slip-ups happen to the best of us. Just pick yourself back up, dust yourself off and keep on heading towards your goal.
That’s everything I can think of at the moment. But I’m still learning - there is probably more to come
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Want to travel more? why not look into airline credit cards and start racking up the mile! You can do it while paying for your everyday bills. Always do a credit card comparison to find the card with the best rates.
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About This Site
Credit Card Debt
- Starting = $37,614
- Paid Off = $28,616
- Current = $8,998
- $25 ING Savings Bonus
Savings Account
- Current = $3,203
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