10 Free Holiday Activities for Couples Paying off Debt

  This is where it all started guys. On a quiet summer afternoon I hit publish on my first post titled 10 Free Activities for Couples Paying off Debt and the rest is history. I thought it fitting to do…

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Source: modernfrugality.com

How to Pay Off Debt – Fast!

The post How to Pay Off Debt – Fast! appeared first on Penny Pinchin' Mom.

Americans are in debt.  It’s one of the main reasons couples fight and a leading cause of stress.  Fortunately, there is a way you can get out of debt.

tricks to getting out of debt fast

Anything worth having in life takes hard work and dedication.  And, the sense of accomplishment and joy when you can tackle what seems to be the impossible, is a great feeling.

The same is with your debt.  Paying it off is NOT easy.  It is going to take a lot of time, but it is so well worth it!

Of course, before you can start to pay off debts, you need to follow the right steps.  It is imperative that you’ve already done the following before you start working on paying off those debts you have.  These include:

  1. Preparing your Net Worth and Debt Paydown Forms
  2. Understanding your Money Attitude
  3. Creating Your Budget
  4. Learning How to Use a Cash Budget (Envelope System)
  5. Setting up Your Emergency Fund

Once you’ve tackled these steps, then you get to start the fun part, which is paying off your debts! If you haven’t, you will want to take the time to read each post and follow the steps.  You really should not try to get out of debt until these steps are done.

 

HOW TO GET OUT OF DEBT FAST

It is fun to watch your debts slowly disappear!   However, it is important that you are ready.  If you are ready, then read on!

KNOW HOW MUCH DEBT YOU HAVE

You need to make sure you know exactly how much you owe and to whom.  I recommend completing a debt pay down form.

This form should list all of the debts you owe, listed from the lowest balances to the highest, as well as your minimum monthly payment.

 

Debt Payoff Forms Bundle

To begin, review your budget.  Hopefully, you were able to find some “extra” money.  By extra money, it means money you have left over after meeting your needs.   When you can free this up in your budget, it is what you will pay towards your debt.

For example, if you were able to lower your grocery bill from $800 to $650 a month, that means you now have $150 to apply to your debt.  My husband and I did this, and it made a HUGE difference.  We did everything we could to reduce our grocery budget from using coupons to menu planning and changing the foods we ate.

Because getting our debt paid off was so important, we eliminated dining out from our budget. For us, it was important to sacrifice in the short term to get ourselves out from underneath our debt.

When you find this extra money, you apply that to your debt. Start by paying any additional money towards the debt on which you owe the least.  Here is an example:

Citibank – $500 owed — minimum payment $10
Visa – $875 owed — minimum payment $15
Ford — $10,475 owed — required monthly payment $375

If you find that you have $25 left over in your budget, apply that towards the lowest debt.  Your form will look something like this now:

Citibank – $500 owed — minimum payment $10 monthly payment $35
Visa – $875 owed — minimum payment $15
Ford — $10,475 owed — required monthly payment $375

Continue to make the payments to these debts as listed.  Then, when Citibank it paid off, you will roll the $35 payment into the Visa payment, like this:

Visa – $875 owed — minimum payment $15 monthly payment $50
Ford — $10,475 owed — required monthly payment $375

Continue this same process.  And, as there is more money freed up in your budget, apply it towards this debt.  Once you start seeing the balances decrease, you will be more motivated to cut your spending and slash your debt.

That is what happened to us.  We were so excited to see those balances decrease that we kept finding more ways to not only reduce our monthly spending but to find more money!

 

HOW TO PAY OFF YOUR DEBTS MORE QUICKLY

Of course, the first step to paying off debts is to find money in your budget to apply towards them.  It can also be beneficial to use larger amounts of cash towards your debts, or even find ways to free up even more money.  Here are some things you might try:

  • Sell items on Craiglist, eBay or other methods.  If you have extra things lying around the house, you may wish to sell them and raise some money and then turn around and make a nice big payment on that smallest debt.
  • Get another job.  If you can swing it, pick up a part-time job and apply all of your earnings towards your debt.  You can try your hand as an Uber driver or even a freelance proofreader.  You can find more ideas on how you can make money from home.
  • Reduce savings and pay down debts.  If you happen to have MORE than $1,000 in the bank currently, but still have debts, you should take any amounts above $1,000 and pay down your debts BEFORE you are saving.  The reason is why are you saving money for yourself and paying more in interest to someone else than you are making yourself?

Get creative!  There are many ways you can find extra money in your budget.  One of these 50 ways to make money to pay off your debt might be the perfect solution for you!

 

HOW TO USE YOUR TAX REFUND

So, what about that nice big tax return that might be coming your way?  Experts say that you should use the rule of thirds:

1/3 towards the past — use to pay off debts
1/3 towards the present — have some fun
1/3 towards the future — savings

If you genuinely want to get out of debt, I would recommend you do the following:  Make sure that you have at least $1,000 in the bank, so your Emergency Fund is funded.  Then, apply any leftover tax refund towards your debt.

We would all love to blow our return on something fun, such as a new TV or vacation.  But, you have to decide if you want that instant gratification (which may turn to guilt) or if you want to get yourself out of debt.  While I can only recommend that you work on the debt first, this is a question only you can answer.

 

WHY NOT CONSIDER INTEREST RATES?

I hear this over and over again “You should pay off the highest interest rate debt first!”  I do not agree with this, and the reason is this – behavior.

Most people need to see that they are reaching goals.  We need to see the fruits of our labor.  By paying off the smallest balance first, it gives you a sense of accomplishment.

You see what you are doing is actually working and you keep working to pay down other debts.  That gives the motivation to keep on as you can see that you are paying off debts and can do this!  GO YOU!!!!

If you work on only the balance with the highest interest rate first, it may take longer actually to pay it down.  Because the rate is higher, it may take longer to tackle the principal balance, since most of your payment always goes towards interest.  This can result in more frustration and you wanting to quit as you feel you are getting nowhere.

Look at it this way; if you were not trying to get out of debt, you would still increase debt due to interest rates, right?  So, if you can do something that gets you on track to start to pay them down one at a time, you are already making a difference in how you look at your debts.

Of course, if you feel better about listing via interest rate, that is what you need to do.  There is not a right or wrong way to pay off your debts.  Just keep in mind that if you find yourself frustrated with progress, you might try to change it around and tackle that lowest balance first.  It just might make the difference for you.

CLOSING THOUGHTS

Getting out of debt is not easy. I’ve been there and know how difficult and challenging it can be.  However, having the tools you need to make it happen is key to your success.

Read our Financial Reboot Book or take the Financial Reboot course to learn even more about not only getting out of debt but how to better manage your money.

 

get out of debt

The post How to Pay Off Debt – Fast! appeared first on Penny Pinchin' Mom.

Source: pennypinchinmom.com

Mint Money Audit: Making the Most of a Side Hustle

This week’s Mint audit introduces us to Selena, 48, a mom of two living in San Antonio, Texas. She is a community college director and her husband, 51, is a full-time graphic designer who also manages a booming side hustle in the same industry.

Selena and her husband have already achieved some impressive financial accomplishments, thanks to tracking their finances on Mint, leveraging coupons and shopping at thrift stores. They’ve paid off $52,000 in student loans and invested in a piece of land next door for $26,000, which they believe has appreciated by nearly 40% since purchasing it a few years ago.

But with retirement looming and two children (currently ages 9 and 12) to possibly put through college, Selena wants to learn about additional money moves that could better prepare them for future expenses. She would also love to pay off the family’s 30-year mortgage before she retires in the next 10 to 12 years. Currently they’re on track to pay it down by 2030.

First, a breakdown of their finances:

NET INCOME

  • Hers: $56,000
  • His: $40,000 plus an additional $40,000 in freelance work
  • Total: $136,000 per year

DEBT

  • Just paid off student loans and a property loan (for the lot next door)
  • Credit Card Debt: $0
  • Mortgage: $163,000 (Monthly payment, including real estate tax, is $1,985)
  • Car note: $5,300 (should be paid off within the year)

RETIREMENT SAVINGS

  • Selena’s teacher pension: Roughly $5,000 per month at retirement if she retires in 12 years ($3,800 if she retires in 6 years).
  • Various IRAs between the two of them: $65,000
  • Estimated social security payments: $2,500 to $3,000 (combined)
  • Husband does not have a 401(k)

RAINY DAY SAVINGS

In an emergency, the family has at least six months of expenses saved up or roughly $35,000.

COLLEGE SAVINGS

Selena and her husband haven’t specifically saved for their children’s college education. They’re concerned that a 529-college savings plan might limit their children’s options, if they didn’t choose to attend a traditional college program.

Recommendations

Leverage the Side Hustle

All in all, I think the family’s finances are in solid shape. But if they’re interested in further securing their future, I would suggest investing the annual side hustle income (which currently sits in a bank account earning no interest) to advance retirement savings and carve out an account for their two children.

Starting that side hustle was a very smart money move because it effectively boosted the family’s net income by 40%. And according to Selena, the business, which they operate out of their living room, is only growing, with profits expected to grow another 30% in the future.

Income from side hustles is how I managed to pay off debt in my 20’s and boost savings. Today, it’s more prevalent among working Americans. More than 44 million Americans have a side revenue stream, according to a recent survey by Bankrate. “Having a side hustle is fiscally responsible,” says Susie Moore, founder of the program Side Hustle Made Simple and the new book, “What If It Does Work Out: How a Side Hustle Can Change Your Life.” “It’s an economic hedge that mitigates disruption to wealth building and future planning. There is no such thing as a fixed income,” she says.

So, let’s do some math and see how far this $40,000 per year side revenue stream can go using a compound interest calculator.

Retirement

The couple’s retirement nest egg is not too shabby. Not including their existing IRAs, the couple has about $8,000 a month coming to them in retirement between social security and Selena’s pension. That amount, alone, basically replaces their current full-time income. (And I do recommend Selena wait 12 years before retiring so that she can take advantage of the maximum pension payment.)

But with all the uncertainty around social security and future health care costs, it can’t hurt to save a little more, right? By placing $6,500 in a Roth IRA each year for the next, say, 15 years (Selena’s husband can qualify for the catch-up contribution since he is 5- years old), they’ll have an additional $142,000 for retirement that won’t be subject to taxes. This assumes an average annual return of 4%. They can open a Roth IRA at any bank.

Future Savings for Children

While a 529 plan may not be the best fit for this family, Selena still would like to carve out savings for her kids’ future endeavors, be it to start a business or attend an alternative school. For this, I’d recommend opening a 5-year certificate of deposit or CD and placing $25,000 in it this year. The going yield right now for a 5-year CD at that deposit level is averaging a little more than 2%.

Then, every year, as income rolls in from the side hustle, create a new 5-year CD and deposit $25,000 in it. Do this for the next four or five years. All CDs will have matured by the time her youngest is starting college (or pursuing something else). And they’ll have at least $100,000 plus interest reserved for their kids. If they do choose to go to college, the family’s prepared to help pay for in-state tuition at one of the fine Texas universities.

Mortgage Payoff

After funding the Roth IRA each year ($6,500) and the annual CD contribution ($25,000), the family’s left with $8,500. They could choose to put this toward the mortgage principal to knock a few years off their payoff schedule. Or, they may want to just hold onto it for that annual family vacation. And if I’m being honest, I’d say, go for the vacation! They deserve it!

The post Mint Money Audit: Making the Most of a Side Hustle appeared first on MintLife Blog.

Source: mint.intuit.com

Is Being Debt Free Worth it?

I had a great talk with Millennial Money Man yesterday and my favorite piece of advice he gave me was to “write what you’re passionate about.” It took me literally five seconds to think of the one thing I’m really passionate…

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Source: modernfrugality.com