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Pay Off Debt Systematically

Paying Off Debt Systematically

When I was younger I found myself with over $10,000 of credit card debt and getting further and further away from paying it off.  I was frustrated and thought I just needed to make more money and that I could pay it off later.  When I finally realized that I was going the wrong way, I developed a system to take control of my personal finances.  Years after paying it off, I read Total Money Makeover by Dave Ramsey and realized that he describes a very similar system that he encourages people to use to get out of debt.  

The first thing that I did was to create an excel spreadsheet for my checking account information.  I had the standard fields that a checkbook would have at the top (income, expenses, balance, etc.).  Then I added in columns for bills, charity, car, food, credit cards, savings, etc.  

I took my expenses and figured out what percentage of my after tax income I would need to designate in order to pay my bills and expenses every month.  Every dime I made then got divided up and put into each column.  I didn’t realize it, but what I was doing was creating a detailed and effective budgeting process.  Suddenly I could track everything that I spent money on.  I soon realized that there were numerous things that took up large amounts over the course of the month, even if they were only small purchases.  I was finally able to get control of my finances and understand where my money was going!

Then I had to change the system for buying things.  I had to stop putting everything on my credit cards and thinking that I will pay this off eventually.  The interest rates for credit cards are extreme and I was really just helping to make the credit card company rich at my expense.  I started to use my debit card for everything.  I would keep the receipts in my wallet and every few days add them to the spreadsheet.  It made it more difficult to make a small purchase because I knew that I would have to keep the receipt and add it in later.  Suddenly I was thinking about my purchases and not simply buying on impulse alone.

Once I got a handle on my income and expenses, I knew I had to tackle the debt.  I started to do everything I possibly could do to earn more and spend less.  It wasn’t easy.  I was called cheap by family and friends.  I missed out on fun nights out with friends.  I got rid of certain monthly expenses that I previously thought I had to have.  I even sold things around the house that I wasn’t using.  I took every extra dime I had for the month and put it towards my credit card debt.  I started with the lowest balance one first and paid the minimum on the others.  I started to get really excited as I moved closer and closer to being debt free.  

As soon as I paid off all of my debt, sudden expenses started to come up.  I did everything I could to manage those expenses without resorting to credit cards.  I built a safety net of funds.  I knew that I had to have a cushion because I can’t predict all of my expenses.  I started to value the comfort in knowing that I had money available if I had trouble.  In fact I started to value that even more than the things that could have bought.  The reduction in stress was worth a little sacrifice and the pride of knowing that I was able to climb my way out of mistakes that I had made was priceless.  

Regardless of your financial situation, knowledge of systems can help to improve your situation.  Paying of debt, investing, and building wealth all require thought-out systems.  Regardless of your strategy, make sure to research and understand what financial tools are available to you to achieve your goals.  

Note:

Understand that there are several authors that discuss ways to build wealth.  Some may say to build the safety net/emergency fund first before paying off credit cards and some may say to leverage your ability to make money through debt.  I am not here to tell you which methods are best for you; I only want to emphasize the power of having thought-out systems to achieve your personal financial goals.  

For more information on how to achieve your idea of financial success I suggest reading Robert Kiyosaki, Dave Ramsey, T. Harv Eker, Thomas Stanley, and any other author that gives insight into building wealth.  Just understand that each one has a different philosophy and your method may be a combination of several rather than blindly following one technique.  I personally have found that I followed Kiyosaki’s teachings for years with little success but I eventually felt more comfortable with Ramsey and Stanley’s works.  By taking their conservative approach, I was able to reach my goals faster with less risk.