Monthly Archives: October 2012

Hit The Brakes – Get Real About Your Debt

This article is step 2 of the Hit The Brakes – Get Real series.  I encourage you to read step 1 – Get Real About Your Expenses.

In this series, we’ll examine ways to stop adding to current debt balances, create a basic budget, and begin the process of moving forward with a solid debt reduction plan.

Now that you have a list of next month’s expenses – it’s time to get real about your debt.

You’ll need access to your latest account balances.  You may need to log in to your online accounts and / or gather up recent statements.  I use Mint to track my various accounts and to manage our household budget.  It’s a cool tool – something you might find handy as we move forward.

I have created a couple of   worksheets – one for listing debts, the other for listing expenses.  I used worksheets very similar to these when I was creating my own debt reduction plan.  Remember, keep all documents related to personal finance in a secure place.  (These are Word files.)

Summary of Current Debt and Summary of Current Expenses Worksheets

Make a list of current creditors, account balances, minimum payments, interest rates, and payment due dates.

Quick side note – I am not a financial professional.  I’m just a dude who hates debt and wants the world to be debt free.  My approach, by design, is simple.  There are thousands of other sites, many written by friends of mine, with tons of detailed financial information.  I write for folks like me – people who want to get out of debt, save some money, and be in a position to bless others.  Now, on with the article!

You have your list of creditors and account balances – and now you are at a point where you can begin to do something about your debt – as a whole.

Add up all of those account balances.  That’s how much money you oweif you could pay off all of your debts, today.

Obviously, the goal is to reduce – and one day eliminate – all of our debt.  To do this, we must first stop adding to those balances.

We must HIT THE BRAKES.

When I decided to get out of debt, I did three things to avoid adding to my account balances –

1.  I stopped using my credit card.  I simply placed my card in the back of my wallet – and stopped using it.

2.  I stopped all auto-payments from my credit card.  I know, I know.  This is old fashioned.  For me, however, this was necessary.  I had several payments, including my cellphone bill and satellite t.v. bill auto-paid via my credit card.  Each month, a couple hundred dollars was automatically tacked-on to my already high balance.  By stopping these auto-payments, I stopped adding to my balance – AND I took another look at my bills.  Win-win.

3.  I committed myself, fully, to the process.  I didn’t leave any room for self-compromise (that a term?).  Instead, I jumped in – determined and ready to make big changes.

So – after step 1 and step 2 – We have a list of next month’s expenses.  We also know where we stand, in terms of creditors, account balances, and how much we owe.  We are committed to the process – and ready to stop adding to those account balances.  We are almost ready to create our debt reduction plan.  See you guys soon with step 3!

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Hit The Brakes – Get Real About Your Expenses

Being in debt stinks.  For real.

I know.  For years I lived with credit card and automobile debt, worried and frustrated.  So, one day, I decided to do something about my debt.

I hit the brakes.

I stopped – took a look at where I was – and decided to go in a whole new direction.

No Credit Needed was born and my life changed – forever.

I think it’s time for a new series here – one I’m calling Hit the Brakes – Get Real.  In it, I’ll explore the steps necessary for analyzing one’s current financial situation and then go over some ways to move forward.  I’ll follow this series with another series – Hit the Gas – Get Moving.  It should be fun.

Today, let’s talk a bit about expenses.  Why?  Because, in the next article, I’m going to write about creating a budget, and it’s impossible to create a budget without first having a list of expenses.  So here we go.

Create a list of next month’s expenses:

List fixed monthly expenses – This list should be relatively easy to compile.  Generally, theses expenses would include items like rent, mortgage payments, monthly subscription costs, monthly fees, satellite or cable bills, etc.  Include all fixed payments to creditors.

List variable monthly expenses – This list may be a bit more difficult to compile.  Generally, these expenses would include items like groceries, fuel, electricity, etc.  Include any variable payments to creditors.  Remember such budget-busters as eating out and entertainment.

List any annual, semi-annual, not-simply-month-by-month expenses due next month – This list is extremely important.  These expenses could include insurance premiums, taxes, etc.  When creating a budget, it’s these types of expenses that can really trip us up.  In a perfect world, we want to budget, each month, for annual bills, dividing the bill by 12, placing that amount in savings, and so-forth.  However, we have to deal with reality – and if we haven’t been saving for that annual bill along-and-along, well, we have to budget for the whole thing next month.

Now let’s work through our list, finding expenses that we can reduce.  I haven’t mentioned income.  I want us to focus on reducing expenses – simply because it’s smart to reduce expenses.  At this point, it would be awesome, for those who are married, to go through this list with our spouse.  Oh the fun we’ll have!

Again, I haven’t mentioned income – or savings – because I really want us to focus on reducing expenses.  There are literally, thousands of articles and tips on saving money, so I won’t try to do that here.  Instead, I’ll simply encourage you to actually DO some of those things listed in some of those articles.

Debt is insidious.  Getting into it is so easy – and getting out can be so hard.  It takes real decision making, and after years of making poor financial decisions, making smart decisions can be difficult.  So, start by stopping.  Make a list of expenses and then get to reducing.

Rewrite your list of next month’s expenses.  This list will become to center-piece of you budget.

 

 

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Mortgage Payoff Progress for October 2012 with Chart

It has been quite some time since I last updated you guys on our mortgage reduction progress.  First, a couple of reminders: My wife and I have a conventional 15-year mortgage and we recently reduced our interest rate.  Our September payment was the first payment to made at our new interest rate.

My wife and I purchased our first home back in February of 2010. Since then, we have been working hard to reduce our mortgage.  I changed jobs in August of 2011 – and we spent a few months adjusting to my new salary and our new financial situation.  Even with the change, we have managed to reduce our principal.

Our goal is to pay it off our mortgage in less than ten total years.

As of October 1, we have made 31 regular monthly mortgage payments. We have also made several additional principal-only payments.

Our mortgage payment is drafted from our primary checking on the first day of each month. Additional principal-only payments are made throughout each month, as we earn additional income and find ways to decrease budgeted-for expenses.

Here is our most recent chart –

 

The chart shows two percentages.

The blue percentage is how much I still owe – the balance.

The red percentage is how much I have reduced – the paid.

Now that we have lowered the interest rate on our mortgage, a larger percentage of our regular monthly payment will go towards principal, which rocks. Also, if we continue to make our old payment, we’ll pay of our mortgage even sooner, which rocks, too!

We are still sending extra, principal-only micro-payments. (Unlike credit card companies, our mortgage provider does not apply micro-payments throughout the month. Instead, all payments are processed on a single day. However, we send them in, throughout the month, because we like a “hands-on” approach to debt reduction. Being mindful, daily, helps to keep us motivated and focused.)

This chart does not represent how much of my house I actually own. It simply reflects how much of our mortgage balance we have paid.

We have made 31 regular payments and have lived in the house for a little more than two years. Our contractual remaining term is 12 years and 5 months, but our actual remaining term is 12 years. We have reduced the length of our mortgage by 5 months!

View all post related to our mortgage payoff progress.

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