The members of the Money Blog Network (myself included) are writing posts about year-end money moves and I thought that it would be appropriate for me to write a post about a subject near and dear to my own heart - debt reduction.  While preparing to write the post, I was reading through the No Credit Needed archives, and I came across this post from December of 2005.  Here’s an excerpt.

I put another 200 dollars towards debt re-payment.  (I received some cash as a gift Sunday!)

I then grabbed my old checkbook register and looked up that $200 dollar deposit.  The $200 was an unexpected Christmas gift I received from a friend - and I used every dollar of it for debt reduction.

Getting out of debt requires two things - dollar bills and determination. 

Instead of rewarding yourself with a new purse or a new television, determine to direct those dollar bills towards debt reduction.

(If you don’t have a mini-emergency fund, consider using any year-end bonuses or cash gifts to establish said fund.  I suggest a mini-emergency fund of $800 - $2000, depending on the size of your family.  After establishing your mini-emergency fund, begin aggressively reducing debt.)

There are several methods for reducing debt, including:

Make minimum payments on all accounts and aggressively repay the account with the LOWEST BALANCE.

Make minimum payments on all accounts and aggressively repay the account with the HIGHEST INTEREST.

Make minimum payments on all accounts and aggressively repay a group of accounts (all credit cards, all student loans), spreading out extra payments among all accounts in a specific group.

Each method has its pros and cons.  I chose method 1, focusing on the account with the LOWEST BALANCE.

After selecting a debt reduction method, get a jump-start by using any year-end bonuses or cash gifts and begin to attack your debts.

If you receive a cash gift  - Deposit the cash in your checking account and send a check to the next creditor on your debt reduction list.

If you receive a year-end bonus - Deposit the bonus in your checking account and send a check to the next creditor on your debt reduction list.

If you receive a gift that you do not need (or want) - Return the gift for cash or store credit.  If you receive cash, deposit that cash in your checking account and send a check to the next creditor on your debt reduction list.  If you receive store credit, assign that credit to a particular budget category.  (Let’s assume you receive a credit for $50 from Wal-Mart.  Assign the$50 credit to your “grocery” category.  Send a check for $50 (the amount now covered by the store credit) to the next creditor on your debt reduction list.)

If you receive a gift that you cannot return (and do not need or want) - Consider selling the gift.  If you do sell the gift, deposit the proceeds from the sale and send a check to the next creditor on your debt reduction list.

My wife and I spent two years living on a very, very strict budget.  We made the decision that we were going to get out of debt - and we did.  For us, we treated every dollar, every extra, as an opportunity to reduce our debt and reach our goal.

Were there times when we struggled to stay on-plan?  Were there times when we spent more than we had budgeted for?  Were there times when we got frustrated and just blew it?  Yes, yes, and yes.  But, we regathered ourselves and we moved forward.  Why?  We were determined.

Instead of waiting for 2008 to begin your debt reduction go ahead an attack your debts, now!

Visit the Money Blog Network for more year-end money moves.

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