Debt Reduction Game Plan

I love to watch football, especially my beloved Atlanta Falcons.  When I was a little kid, I played both running back and safety.  I really enjoyed being on offense, but I also learned the value of a good defense.  Throw in a little special teams unit, and you have yourself a complete team.

Thinking about debt reduction, I was reminded of the importance of the “team” concept.  I think it’s important to start with a solid defense, add in a powerful offense, and then compliment them both with some great special teams.  If we can find the proper balance between these three “units”, we can really dominate our debts – and soon be debt free.

Solid Defense –

Before I began repaying my debts, I established a small cash reserve – also known as an emergency fund – of about $2000.  Instead of relying on my credit cards for unplanned-for expenses, the small cash reserve provided a defensive cushion against life’s inevitable hiccups.  When I had to dip into my cash reserve, I would halt my aggressive debt repayments, rebuild the cash reserve, and then continue with my debt reduction plan.  Trying to reduce debt without an emergency fund is like playing football with only 7 men on defense.  You can do it, but it’s not very smart.

As I began to focus on reducing my debts, I always made sure to make minimum payments to all creditors – on time.  This helped me to avoid penalties (pun intended) like late fees and additional interest charges.  Even during the months when I could not make additional debt payments, I still made minimum payments.  One of the keys to debt reduction is to stop giving up ground (going deeper into debt) – and there’s nothing like making payments on time to reduce those dreaded fees and penalties.

I put my credit cards in my wallet – and then forgot that they were there.  Some will suggest cutting up credit cards or freezing them in a bowl of water.  For me, I wanted to learn a little discipline, so I simply put my cards in the wallet, and promised myself that I would not use them.  Four years later, this was one of the smartest decisions I’ve ever made.

Powerful Offense –

I created a debt reduction plan. I chose to make extra payments to the credit account with the lowest balance – others may choose to make extra payments to the account with the highest interest.  It doesn’t matter which plan you choose, but it does matter that you have a plan.  Some teams pass the ball, while others run.  Either style can win, but a team must be dedicated to its style of play.  The same is true about debt reduction.  Pick a strategy, stick with it, and stay focused.

I made multiple extra payments to a single account, each and every month.  Remember, as part of my defense, all minimum payments were made (on time or early).  After making those payments, I would spend the rest of the month feverishly working to make extra payments to the next account on my list.  A good offense is an intense offense.  This holds true for debt reduction, as well.  Honestly, if you are not a a little mad, and a little fed up, you might never get out of debt.  Making these multiple payments “kept my head in the game” and helped me maintain direction and focus.

Special Teams –

I made extra payments as early in the month as possible.  This reduced accrued interest, because it lowers the average daily balance.

I used unexpected income to boost my debt reduction payments.  I never considered using bonuses, gifts, or cash payments for anything other than debt reduction.  Remember, it’s important to maintain a laser-like focus.

I stopped waiting for the hail-Mary, and began to focus on the routine (and boring).  Instead of waiting for the next raise, or the next paycheck, or the next whatever, I decided to take the income that I was already making, and deal with my situation.  If I had continued to wait for things to “get better” – I’d still be in debt – and I’d still be waiting.

I decided that it was okay to be different.  Quick story – The other day I went to buy my wife a gift at a department store.  The customer service representative who sold me the gift asked me if I wanted to apply for a store-branded credit card.  I declined, even though the store was offering a 15% discount for signing up for the card.  The woman behind me in line could not believe that I would give up the “free money”.  I politely explained that my wife and I pay cash for the things we want.  The woman behind me said, “Yeah, that might work for your wife’s clothes, but I’ll bet you borrow money for things you want, like a new truck or a boat.”  (It felt a little odd to be having this conversation with a complete stranger.)  I said, again politely, “No, mam.  I pay cash for everything, including our last new automobile.”  She said, “Really?  Why?”  (At this point, I was almost tempted to give her the address for this site, but I refrained.)  I simply replied, “For 15 years, I lived paycheck to paycheck, and I borrowed money.  Now, I’m debt free, I pay cash, and I’m happier than I’ve ever been.  This is what works for us, and as long as it’s not broke, I’m not going to try to fix it.”  She then looked on, a bit stunned, as I pulled out my cash envelope, paid cash for a really nice gift for my wife, placed my receipt in the envelope, and headed on my way.  It’s fun to be different!

I want to thank those of you who have subscribed to No Credit Needed.  I’m back home from vacation and my family and I had a wonderful time.  Also, I noticed that several of you have followed me on Twitter.  Thank you so much, and feel free to drop me a tweet.  Regular posting will resume as of today!