Pay Off Your Debt for Good

“There are two ways to enslave a nation. One is by the sword. The other is by debt.” There is an ongoing debate on the internet about whether or not that quote was first said by John Adams. Regardless, the quote is very powerful with its meaning. Debt is slavery. With debt you are controlled by the person in which you owe. If you don’t believe me, stop paying your monthly payments on your house, car, or other loans. The bank or other creditor will come along and seize that asset from you or other assets that have been used as collateral. Debt is very powerful and can take a massive financial and psychological toll on us. Paying off our debt can lead to previously unfathomed levels of financial freedom and happiness. I’ve started Young and Wealthy Living to help others realize this dream.

Today, we will observe multiple methods that can be used to pay off different types of debt faster by taking various steps.

Pay Off Your DebtThe Debt Portfolio

If you’re like most people, you have many different forms of debt. These could be a credit card balance, mortgage, student loans, car payments, or personal loans. If you are looking to make more than just your monthly payments on these loans, I commend you, this is the first step to finally becoming debt free. But you may be wondering, which loans should I put the extra payments toward? To answer this we will use the debt stacking method, as I strongly believe that this is the best way to attack debt. It’s very simple and straightforward. Put extra payments to the debt with the highest interest rate and pay the minimum payments on the rest of the debts. The reason this method works is that over time you will be able to accelerate how quickly all of your debt will be paid off since more and more of your payments will be going towards the principle instead of the interest. Using the debt stacking method you will pay less in total interest and you will have all of your debts paid off faster than if you just used the shotgun approach on your debt.

Student Loans

If you’re like me, you graduated with student loans consisting of private and federal loans. My student loans ranged from 3% interest to 6.8% interest. If you plan on taking the full ten years to pay off your student loans, you could be paying thousands of dollars in interest alone over this time period. If I had only been making the minimum payments on my loans I would have paid over $10,000 in interest alone. To help lower your monthly payments and literally save yourself potentially thousands of dollars in interest, you can consolidate all of your loans into one loan. Yes, you read that correctly. Not only does this give you only one loan to have to keep track of and remember to pay, but it would most likely lower your interest rate and save you money. A couple of good resources for this are Sofi and Earnest. You can also check with local credit unions as many of them offer this service as well. There are a couple things to note, however. First, many services will require that you be employed or have an offer of employment and some might require that you have an emergency fund setup. Continue to make the larger payments you had before consolidating and you will have your student loans paid off ahead of time!

Credit Cards

The average credit card debt for American adults with a credit card is $5,047 according to creditcards.com. Unfortunately, credit card debt is usually the most painful because it typically carries the highest interest rate of debts people are likely to have. It is not unlikely to see credit cards with an APR of 15% to 24%. If you are carrying a large balance on your credit card you can expect to pay thousands of dollars in interest before your card is paid off and have it take years to do. The key to lowering your payments on the credit card debt is to lower your interest rate. This will allow you to pay off that debt faster and potentially saving you thousands in interest payments.

The first method here if you have a high credit card balance and are struggling to make your payments is to transfer your balance to a new card that offers an introductory offer of 0% interest on balance transfers. A couple of great cards for this are the Chase Slate and Discover It cards. This introductory rate is only good for a period of time however, typically 12 to 21 months, before it increases to the typical 15% – 24%, so you should be paying as much as possible during this time as 100% of your payments would be going towards the principle. Again, there are a couple things to note here. Sometimes there is a fee to transfer a balance, oftentimes of 3% – 5% and you will need good to excellent credit to qualify for the best offers.

Another method you should try if you have not already: simply ask. Just call up the credit card company, be very polite, and explain to them that you would love to pay off your credit card debt but the current interest rate makes it very difficult for you to make extra payments. Then ask them if they could lower your interest rate for you. You may initially get a ‘no’ but it is very likely that you will need to go through several people in the company before you reach someone that has the authority to negotiate this. Just remember to be polite to the person on the other end of the phone and they will be willing to pass you along to someone who can help.

You may think the credit card company doesn’t care about you and if you can make your payments or not. But the truth is they absolutely want you to make your payments and have a payment plan you can afford. They would much rather work with you and have you pay off your debt than to sell your debt to a collections company for pennies on the dollar.

Of course, these are not the only methods you can use to decrease payments and pay debt off faster but we all have our favorites and those we believe to be the most effective. Recognize how debt has the ability to control you and make a plan to attack it and you will be well on your way to wiping out your debt and becoming debt free! Feel free to share your debt elimination plans and stories with me by emailing me at nic@youngandwealthyliving.com. Together we can conquer our debt and be on the path to financial freedom!

Is Not Keeping Up with the Joneses Boring?

We’ve been on a journey to pay off our debt for 3.5 years now.  At first, we were gazelle intense, but then I burned out from working too hard, so we slowed down on the debt repayment.

Last year, we moved to Arizona from Illinois, so our money became much tighter as we faced unexpected moving expenses.  (Aren’t there always unexpected expenses when making such a long move?)

To make matters worse, in the first 3.5 months of 2015, we’ve faced $5,000 in unexpected car repairs and dental bills.

The good news is that even though we haven’t made significant debt repayment progress over the last year, we’ve been able to pay for all of these most recent expenses in cash, without going further into debt.

Boring JonesesBasically, each year for the last 3.5 years, our budget has become tighter and tighter.  We’ve definitely NOT kept up with the Joneses.

Yet, we’ve not found this type of life boring.

We Appreciate Splurges More

If anything, living this way makes us appreciate a “treat” that we used to take for granted.  For instance, I homeschool my kids, and my daughters recently completed preschool and kindergarten.  They were both very excited about moving on to kindergarten and first grade, respectively, so my husband and I decided to take the family out for a treat.

We went to our favorite restaurant.  We went for breakfast, so the bill would be cheaper, and we used a $25 gift card that we had gotten at Christmas and saved.  Because we had not gone out to eat in about five months, the kids were beyond thrilled.  All of us enjoyed the meal greatly.

Because we haven’t gone out to eat in so long, doing so was a special treat.

Before we got on a budget and started paying down debt, we often went out to eat three or four times a week.  Honestly, because we did it so often, going out to eat had become boring.  Now, because we don’t do it very often, we appreciate the meal when we do go out.

Because we have simplified our lives, we are able to enjoy special occasions much more.

We Have Plenty of Fun—For Free

Just because we aren’t keeping up with the Jones and are on a budget doesn’t mean we aren’t having fun.  Just this week, my mom was in town for a visit.  We took her to a national park, which had free admission that day.  We watched artisans make homemade tortillas and weave baskets.  We listened to a local band, and we got an excellent tour of the site.  Before heading home, we enjoyed a picnic lunch on the grounds.

Last month we went to the Tucson Festival of Books.  There was so much to do (for free!) that we stayed over five hours.  We could have stayed even longer.

Going on a tight budget and deciding NOT to keep up with the Jones can be difficult at first.  Now, however, we’ve done it for so many years that we find living this way actually improves our quality of life.

 

How a Drop in Income Turned Out to Be a Good Thing

Over the last few months, my husband and I have lost some income.  Not a little drop in income.  About 20 to 25% of our monthly income.  And let me tell you, we weren’t earning more than the median income for a family of five to begin with.

Our budget was already tight, so when the drop in income happened a few months ago, I’ll admit, I panicked a bit.  I felt a little bit desperate.  I’m sure those of you who’ve been in a similar situation know the feeling.

And then I took a deep breath, and told myself we’d be alright.  And we are alright.  We’re actually better than alright.

Taking Stock of the Positive

The first thing I did, after I calmed down a bit, was to look at the positive side.  We had already paid off half of our debt, so we don’t have several debts to pay monthly.  We’re only left with one student loan payment every month, so that is a relief.  (When we started our debt repayment over two years ago, we had five monthly debt repayments that totaled almost $1,000 a month.  Now, we only need to pay $315 a month.)

drop in income a good thingSecondly, we’re used to living on a tight budget because we’ve been doing so as we try to pay down debt.  Our income drop, though not slight, was not going to throw us into a completely different style of living that we weren’t accustomed to.  I’m used to buying my clothes second hand.  I’m used to cooking all of our meals from scratch and not going out to eat.  The only adjustment we had to make was buckling down even more.

Why Our Income Drop Turned Out to Be a Good Thing

While our budget is lean, we still had some fat there.  We subscribe to Netflix for both streaming movies and DVD home delivery.  After the income drop, I decided the home delivery at $11.99 a month could go.  I had been thinking this for awhile, but I was afraid we’d miss the service.  Guess what?  We don’t.  I can borrow most of the movies for free from the library.

In addition, I think much more carefully about purchases now.  Buying something on a whim is no longer a possibility.  I have to think carefully before making a purchase, which has made me realize I don’t need many of the things I’ve been thinking of buying.

I also took other frugal steps that I’d been to lazy to take previously.  I had always read that making your own laundry detergent can be a big money saver.  A year ago, I bought all the supplies that I needed, but I never got around to making it.  Well, I finally did a few weeks ago, and it works great.  Sometimes it takes circumstances to prod me into changes I should have made a long time ago.

Of course, we don’t want to live with such a tight budget indefinitely.  But now I know that there are many cost cutting measures I’ve implemented that aren’t difficult.  When we make more money, that just means I’ll have room for greater savings and paying off that last student loan.

Have you ever experienced a tight budget?  If so, did you find it to be a good thing as I have?