Money Saving Archives - Page 17 of 17

We have become so governed by debt that we have no room left to live. As part of our Beat The Budget series I want to discuss how we can destroy debt and still live our lives. It’s time to budget while in debt.

Before I start….
If you are paying debt before your other bills stop! Pay for food. Make sure your mortgage or rent is caught up. Deal with the necessities. The debt collectors will try to scare you with every threat in the book. If you don’t have a roof over your head and food in your stomach you are not going to be able to pay them back long term. Take a deep breath and take care of you first.

Before I move on I will say that I am a big fan of Dave Ramsey‘s Debt Snowball and that is what I will be sharing as I post this. For more info click to Buy Dave Ramsey’s Financial Peace Revisited.

An Example.

Mary has some debt. Between medical bills and few credit cards she is overwhelmed. She has decided to try and use Dave Ramsey’s debt snowball. Here’s how her budget would look.

Make a List!
Things to keep in mind when making your list.

Start with the smallest debt. – Don’t list your debt from greatest to least. Reverse it. Start with the smallest debt even if it’s $5 and list it all out.
Include Due Dates – Knowing when a payment is due helps you to avoid overdue fines.
Include the Minimum Payment – If you have an arrangement list the minimum payment you can make.

There are bills I haven’t paid in a LONG time!

I know how this is. Sometimes life gets so hard you don’t have the money to give them. It may be a week late or a few months late. Either way, do the following.

Ask for an adjusted paydown – Debt collection agencies buy the debt for a fraction of the cost. Because of this they are sometimes willing to take less than the full amount if paid at once. Ask your collector if they will take a smaller amount to finish out the debt. The worst they can tell you is “no.” You could save up to 50% on the bill. **I am not saying to let it go into collections to save money though. If you owe it and can pay it, pay it. **
GET IT IN WRITING! If you are able to get a paydown make sure you have in writing that the debt is forgiven. Put that in a file and keep it forever.
Set up a payment plan – Most places will work with you. If you are able to make any kind of downpayment many places will let you make a monthly payment. The size of the monthly payment will depend on the type of bill and the company.

Now What?

You have made your list and you have it all broken down. This is going to sound counter culture but I am going to ask you to hear me out as I have seen this work in my lives and the of others.

Pay the minimum payment on everything. – I know it sounds against all you know but trust me. It will make sense soon.
The extra goes to the smallest. – If you have any extra money in your budget you want to put towards debt, put it towards the smallest debt. Paying off a debt, even a small one is such a huge reward. It will give you the oomph to get trucking.
Pay one off, keep the payment. – Don’t start pocketing the monthly payment from that small debt you payed off. Add it to the new smallest debt. This will mean that the new smaller debt will get paid down quicker because you are now paying an entire extra amount of money to it each month.
Keep Rolling – As you pay off your smaller debts you will keep adding that amount to the next bill. Before you know it you are paying a huge payment on your largest debt and knocking it out quickly.

Mary’s Budget – *I am doing this scenario based on paying only principle. Naturally interest effects things different but it shows the idea.

Month 1 – This month Mary had $5 extra dollars from other areas in her budget. She applied it to number 1.