Take Back Your Finances Challenge #6: Time to Organize Your Debt

It’s another great week to continue to make progress on our finances! We are in the heart of working on getting $1,000 in 30 days as we use that seed money for emergency funds, savings, paying off debts, working towards a specific savings goal, etc. It is also so exciting as we have already heard from many of you about the hundreds you have added to your funds in the past couple of weeks and some even already surpassing the goal of $1,000! THAT IS AWESOME and keep up the momentum.  This is our four weeks of sacrifice and hard work to help us sail through the rest of the year with ease and with baby steps!

Also, we just completed our Penniless Week Challenge to help add hundreds or more to our goals.  We hope your penniless week was a success and that you at least were able to add a little more than normal to your bank accounts. You are doing well on these big challenges up front here – but trust us, this is the jumpstart to get you motivated as we move into a lifestyle of frugal living and savings galore!  And if you haven’t completed your Penniless Week Challenge yet (maybe the timing wasn’t right) there’s no time like the present to get started!

First we want to encourage you to keep working on the How To Get $1,000 in 30 Days Challenge and get as close as you can to that goal.  Even if you are a “little short” the fact is that you will end up having much more than you had before and a nice jumpstart nonetheless! And CONGRATULATIONS to those of you that are on target to hit the goal or have already hit the target – keep going.  We’re sure that exceeding your goal won’t make you too sad – we personally believe that no one will turn down the extra savings.

So while you are continuing on with this jumpstart challenge, take some time this week to complete this week’s challenge. This week’s challenge is going to be used later on in the 52 weeks; but as we have mentioned there’s always groundwork to lay so that you know what you are working towards and have those goals in mind.

This week’s challenge deals with those specifically in debt – if you are debt-free then YAY, GOOD GOING and keep it that way. And keep working on the other challenge exclusively.

For those that are in debt (whether deep in debt or just a loan or two) – YOU WILL GET RID OF IT and we’re here to help. After getting ourselves into over $100K of debts, always a week from claiming bankruptcy and not a penny to spare when we started…we got serious and paid it off. We paid off $15k the first 3 years with struggles, fights and frustrations. Then we finally figured out strategies and changes that allowed us to pay off the remaining $85K of it in just over 3 years – it’s these same tips and tricks we developed and implemented the last 3 years that we are sharing with you. It did not involve debt-consolidation, 2nd mortgages, credit counseling, bankruptcy, etc… just real, gradual, whole-life change and hard work.

We did the things that didn’t work the first half and the things that did work the latter half. So, there is a light at the end of the tunnel. We know the feeling of hopelessness and frustration – but because of this process we also know how we gradually and then finally felt freedom and relief. There really is a light at the end of the tunnel – we know because we went from disbelief to seeing it ourselves!

With that mini-intro to our “deep in debt to consumer debt-free life,” it’s time to introducing this week’s task should take less than 1-hour in total, giving you the rest of the week to keep focusing on the $1,000 in 30 days challenge. But it is an important step for some things we will be doing later, so we really want you to complete it and be ready for when we are ready for those next steps.

It’s quite simple, yet eye-opening at the same time.

We want you to get a good visual of the debts you have and crunch some numbers to face the reality of how debt does weigh you down and what it looks like with real numbers. It may seem discouraging, but many years ago, we had decided to face our numbers in detail and it was very eye-opening, motivating and even encouraging to see that we were going to beat the system and not pay the interest calculated or take the time calculated to be debt-free. It is more difficult to work towards a goal when you can’t see the full picture.  That’s what this week’s challenge is designed to do.

There are two printable downloads (download, then print off the forms) to fill-out and complete. Print off as many as you need.

Step #1  – Full Debt Overview Printables

The first printable will give you the high level view of the reality of your debts.

All debt shown here is for example only

Here’s how to fill-it out:

• List the debts on each individual line and start with name of lender and payment in first column
• Then list your interest rate on that particular debt
• Then fill-in your balance
• Then write whether your payment is adjusted or fixed (meaning that if you pay down on this debt, your payment is also less, or is your payment always the same no matter the balance.  Credit cards are usually adjusted and things like car loans are fixed as examples.)

Next, you can use this handy dandy debt-calculator HERE to fill-in the Annual Interest and the Estimated Payoff Date columns.

Let’s take our first example on the sheet:

It’s the Visa Credit Card #1 with a 17.9% interest rate, balance of $5,400 and a $101 payment (adjustable, but that is the current payment).

So enter those factors into this calculator and then click on “calculate”:

So then you can fill in your payoff date with using the months or years.  And now you can figure your annual interest.  You see the total interest that you will be paying at this point is $5,494.68.  Here’s how to calculate your annual interest.

• Take the months divided by 12 – in this case 108/12 = 9 (this happens to be exact, but most will be like 3.5 years or similar)
• Then take the total interest and divide by your previous answer, in this case $5494.68/9  (or the amount divided by 3.5 or whatever the answer above ends up being) = $610.52 and round to the nearest dollar so $611 is the annual interest on this debt!
• After you have all of the annual interest calculated, for another “fun” step, you can add up the total in interest you pay each year.  YIKES!

Once you have done that for all of your debts, then you are done with this challenge and be watching for the next part 🙂

Here’s what you need you need (download/print as many times as you need):

<== Download your printable Full Debt Overview Form HERE

Step #2  – Overview of Debt Payoff Plan and Goal Setter

Step #2 is a download to visually prioritize your debts and write down a goal payoff date.

Here’s how to fill this out:

• Print off this sheet
• Then place each debt under the right dollar amount category based on the current balance.
• Then fill-in the interest rate
• Fill in the balance
• Then skip to the last line and your “rolled amount” will be the payment you are currently making.

Once you complete that part, then next steps are figuring out the priority and your goal payoff date.

When Cassie and I were working on our debts, we created an amortization schedule as well.  But we did it the old-fashioned way (better way coming up next – no need to despair) of creating an Excel spreadsheet and then prioritizing our debts based on all factors (balance, interest rate, whether it was a fixed or adjustable payment and if it was tax deductible). I ran all sorts of calculations to figure out how I could reach our debt payoff goal in the shortest amount of time possible.  But I am also a math geek, and so I liked playing with these equations myself and figuring it out. Plus, I don’t ever remember coming across any free online tools that figured it out either at that time.

To do this in a much easier fashion, there is a really neat tool on Bankrate HERE that allows you to plug-in all of your debts with current interest rates and facts.  They will then run a number of calculations and come up with what they think is going to be the fastest way (while paying the least amount of interest) to pay it off.  I find this tool to be quite slick and handy.  Although I don’t totally agree with the priority and plan that it came up with using my sample numbers, it is at least a great place to start and very simple.

So you can do what we did and figure it all out yourself, or you can use this free tool from Bankrate.

Using the eight debt examples I created on this list, it took me about 10 minutes to enter them into this Bankrate system for them to give me what they thought was the best payoff plan.

Before you complete this, take a look at your budget now and decide how much extra you can realistically contribute to debts. This is a starting point because we hope to help you increase that amount by helping you find extra money by saving in all areas of life and by potential extra money making opportunities and as we continue the 52-Week Take Back Your Finances Challenge.  So this is going to be your first-run, worst case if we have no extra money at any time payoff goal planner.

Part #2 steps:

• Head to Bankrate HERE and enter the facts of all of your debts (interest rate, balance, payment, etc.)
• Once you enter all of those in, you will be asked how much extra you can contribute to paying off your debts each month.  For the purposes of this example, I put in $400 (again, we hope to help you find more each month, but start somewhere realistic currently)

• The next questions will ask you of any raises or windfalls that you know of that are coming.  For the test, I just left these blank.  Many of those things cannot be predicted, but if you do know, then by all means add that in.
• Now what Bankrate will do is take all of this information and calculate a payoff plan and priorities for you.
• So with my 8 debts example which totaled $45,794 in total debts, they have come up with a plan to have it paid off in 31 months with only the $400 extra, plus the rolled over payment amounts from the previous debts.  Just think, if you were able to find that 2% extra each month that we talk about, it would be that much quicker!

• Click on “Get Plan” and you will then see a detailed plan and the priority in which they place your debts.

• You can then use these numbers to prioritize your debts on the download we provided as well as the payoff goal debt.  So as you can see, I set a priority of “#1” on the Visa CC#2 with the $6,200 balance and the payoff date of November 2013 and went through my list to do this to all of them.

That is a simple, easy, effective way to set your goals.

Now like I mentioned, this is a good starting point, but I don’t totally agree with the order of priorities. Instead decide the priority based on what makes sense! Here’s some factors I would consider when prioritizing your debts:

• In general our encouragement is going to be to pay off lowest balances first and prioritize by balance – I would actually payoff the two in the $0-$1,500 category first starting with the low balances as it looks like I could get them both paid off with this plan in just a few months and that would give motivation to see one or two drop off right away and two less payments. Plus it would also give me $82 extra per month right away to roll into other debts.
• For balances that are relatively close pay off the loan with the higher interest rate first – As we have you group the debts into different balance ranges, we would probably look at each loan in that group and pay off the highest interest rates first.
• For fixed-payment loans we would encourage waiting on them as they most likely won’t free up any extra cash right away – Examples of this are the cars – we would wait until the end as the payments are most likely fixed and paying them off early won’t free up any cash for your debt payoff process. Debts that have adjustable payments means extra cash to roll into the debts immediately.
• Wait until the end to pay off any Student Loans –  We actually encourage this for multiple reasons.  First, they generally have the lowest interest rates.  Second, any interest you pay is typically tax deductible.  And finally if you lose your job or source of income you can usually defer the payment process until you have secured another job (typically the interest will continue to build but you are usually not responsible for the monthly payment during the time of unemployment).

So we encourage you to consider these additional factors as you work on deciding which debts are going to be your priority too.

Here’s the download that you need and print this off as often as you need to update your numbers!

<== Download your printable Debt Payoff and Goal Plan HERE

Need to catch up?  Come join us on this challenge from the very beginning by clicking on the 52-Week Take Back Your Finances Challenge and sign up to start receiving your automated challenge from the very beginning!

One final thing…we also have a Facebook Group where you can engage in discussions, receive encouragement and talk to others that are participating in the challenges too for more ideas! Head to the Be Intentional with The Thrifty Couple Facebook Page HERE and ask to join us there! You can also invite friends and spouses too!

Disclaimer: We are not licenses financial planners. We are only a couple that have been just a hair-breadth away from bankruptcy and found our way out of debt with a goal to now help others. Please make sure to consider any advice given on our site and in this challenge as tips we have used ourselves; they may not work for everyone. If you have questions please make sure to contact a licensed professional.