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10.13.2014

How To Be Debt Free

i have a pretty interesting post here for you today.  since i paid off my student loans and became totally debt free, i find that i love reading posts and blogs about finances even more.  funny how that works, you stop hating something once you have control over it.  well hanging out on my sidebar this month is kristyn of chits and giggles.  she struggled with and got out of consumer debt - you know, those pesky credit cards.  if you find those bills creeping up on you each month, read on for kristyn's step by step process for becoming debt free.  it's a process, but you can absolutely get there.  debt free is such a great feeling!

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Most Americans have credit cards and almost all of them carry balances on those cards. A lot of people have more than one credit card with a balance on it that they struggle to pay off. Are you one of these people? Don't be ashamed if you are. I was one of these people myself, but I was able to get out of debt with the help of my sister.

How To Be Debt Free #debt #finances

I am a shopper. I always have been and I always will be. I wasn't buying designer clothes or anything, so when I finally added up the debt total, I was in disbelief. Shock was all over my face. I just couldn't believe that I racked up that much debt myself. Somehow I had managed to get myself in the hole $15,000. By myself. It was time for an intervention, and my sister graciously accepted the challenge of helping me become debt free. Here are the steps we took to get me out of debt. 
How To Get Out Of Debt Step 1 Organize your APRs from highest to lowest. I know this might sound backward to some of you, but it's a lot easier to pay off the higher APRs than the higher balances. And remember, the higher the APR, the more you are giving to the credit card company each month in interest. So keep that in mind as well! I used a spreadsheet to keep all my cards organized. I listed the card, APR, amount due and due date on the spreadsheet.
How To Get Out Of Debt Step 2
This can be a challenging step if you aren't organized. The whole reason you are doing this is to get out of debt.
I needed the most help from my sister to help keep track of my spending in this step. I went on a very harsh $80/week cash only system where I would go to her house for dinner and she would hand me my $80 cash from my own bank account. Yes, she had complete control over my finances. I don't wish this on anyone, but it worked for me...and I was the one that suggested it.
We had another spreadsheet that we used to budget everything. The $80 that I received was used for groceries, gas and anything else I had leftover. Needless to say, I didn't do much else because $80 a week doesn't get you very far!
Once we had the spreadsheet ready (it used all sorts of formulas), we mapped out a plan. I believe we started putting $300 toward the cards and then I put $75 every 2 weeks into a savings account. We called that my "Oh Shit" account.
When you review the maximums you can pay, make sure you don't over do it and then overdraw your account. Do what you can do within your means.
How To Get Out Of Debt Step 3
This step was the hardest for me to accept. I just didn't want to pay off the highest APR over the highest balance. That sort of killed every other debt solution I knew of. But, it makes sense.
Let's say you have credit card A with a $1,000 balance. The APR on CC (stands for credit card)-A is 25%. That would mean you are paying $250 in interest alone. That's a lot, especially since you aren't getting anything tangible as a result of that $250. Credit card B has a $1,000 balance as well. It's APR is 15.99%. That means you are paying $159.90 in interest. It's much less than CC-A's interest, so you pay off CC-A first. Then come and tackle CC-B.
Make sense? Meanwhile, pay minimums on the other cards you have while you are paying off the biggest APR card.
How To Get Out Of Debt Step 4 Congratulations! You paid off your first credit card using this method. That deserves some sort of celebration, don't you think? Go celebrate with a dinner out with friends, or a yummy bottle of wine. If you go out, take cash with you or use your debit card. Just because you paid off this credit card doesn't mean you can start spending on it again. And you have other credit cards that you need to pay off too, so be careful not to over-indulge.
How To Get Out Of Debt Step 5
Keep moving down your list of cards by APR and paying them off. It's a snowball effect in the best way possible. Because you are paying minimums on the other cards in your list, you can apply those minimums to your larger APR card that you are paying off to pay off faster.
Example: Credit card A has a minimum of $100. Credit card B has a minimum of $80. Credit Card C has a minimum of $70. And credit card D has a minimum of $90. These are in order of APR already. You have paid off CC-A! Congrats! Now, you can apply the amount you were paying on that card - say $500 to CC-B's minimum balance to make a total paid each month on that card $580. Once that card is paid off, you do the same with CC-C and pay $650/month. Finally, you finish out by paying $740/month to credit card D.

So, when will you start using these steps to get out of debt?

25 comments:

  1. I am completely debt free and one of the things I used was a spreadsheet that helped calculate when things would be pay off... I could manipulate the principal amount and how much extra I paid to see how quickly I could pay it off. It was SO addicting.

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  2. you have no more student loan debt? hashtag jealous.

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  3. Love this post! Good job on being debt free!

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  4. Gotta love the debt snowball! I only have my student loans, and they all have the same interest rate, so I pay off smallest balance to largest. It feels SO GOOD to get rid of each small loan! :)

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  5. That's how we're paying down our debt, it can be applied to student loans and cars too. When I paid my credit cards down like this, it was so awesome to get "rid" of one card!

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  6. I am on a very strict budget right now and my friends don't understand how I can never go out because I'm "broke." But, I'm paying off my student loans so I have a VERY small spending budget. I do live at home (so I can pay off these loans) so that helps, but I still restrict my spending money A LOT. It's difficult, but extremely helpful. I've paid off 2 credit cards, 2 student loans and working on my third loan and then my car.

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  7. This is awesome. i really didn't know much about this because I've never been in credit card debt. I just treat it like a debit card. that's worked for me so far!

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  8. We are working on paying off a car and the last of my husband's student debts (on a credit card -- EEK!!!) so I can really relate to this. It can be really frustrating to feel broke all the time, but it has to be done. Your sister was really awesome to help you get through this.

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    1. You'll be there soon and it'll all be worth it! Debt free is the best feeling

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  9. Ughhh debt. Haha! Great tips on getting control of it!

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  10. SO incredibly jealous you don't have student loan debt. I just think of it like my mortgage payment that I'll have to pay forever and ever. Boooo.

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  11. Congrats on being debt free. I have CC balances but they're not insane. What I need to get aggressive with are my soon-to-be-due student loans. I'm dreading it but plan to pay extra wherever I can.

    Michael
    CrazyTragic{almost}Magic

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    1. I paid extra on my loans, whenever any money came it. It makes them go down much faster! Just be strict for a little while - better than having them lord over you forever!

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  12. i have to admit, i'm totally obsessed with posts about how to get debt free, too! it's so relieving when you can pay off things! my husband and I set a goal to pay off everything (except the mortgage) in one year. we started last august... it was a struggle, but now we're used to living that way and we're saving what we were using to pay off.. over $1,500/ month! it's amazing to see the savings account going up!

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  13. LOVE this!! You go Kristyn :) Luckily our only debt is our student loans and we've been tackling them along the way- but these are awesome tips for any kind of payoff.

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  14. You know what's worse than having debt? Not having ANY credit to even get ANY debt! That's my problem right now. UGH!

    2 more years... and I can start building my credit when I go back to work full time and we can buy a house. DAMMIT JIM!

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  15. I'm working (semi-hard) on this. I was going to say really hard but I had 2 trips planned long before I started this that I will need the card for but I haven't used it for anything else since August.

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  16. Congrats on being debt free!
    When we paid off all of our CC, we did it lowest balance to highest. For us, we wanted to make some progress quickly and used that to get a mental boost each time.

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  17. These are great tips Stephanie :) I signed up for CareOne almost 2 years ago and that's helped me reduce a significant amount of credit - I have student loans I'm also paying off.. I've learned to say NO to credit unless it's a secured credit card which I have and helps because you put the money FIRST. Have a great one Stephanie! -Iva

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  18. So awesome that you are debt free. That is a really good system to use. I need to write out my APR's quick, and get to it.

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  19. Gosh it's so inspiring...and then I look at all of the weddings/trips/presents and the amount to pay off gets smaller and smaller. I can't even afford to pay all of my student loans. Luckily my new job is a small pay raise but even that won't make much of a dent. I blame grad school and my idiot living-above-my-means lifestyle in my early 20s getting me to this point. Small steps, though. I'll get there someday...sigh...

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  20. I am actually quite proud of the fact that we are debt free. We use our credit card to buy things the whole month for the cash back,but pay it off each month. We though do sometimes use our best buy card to buy things we want with the whole no finance for so many months, but we always pay that off way before its "due"

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  21. Is it weird that I want to get a fixed payment loan to pay off my smallest card first that way I don't have to worry about that card?

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