How to Create a Plan to Pay Off Debt

Do you have

debt

s? Today I will show you the first steps you need to take to begin a

debt

payoff journey and how to finally get rid of your debt once and for all while striving to live a life I love on a budget I can afford, welcome to the YouTube channel from Budget Mom, today we are going to talk about debt and I am very passionate when it comes to this topic because I am on a debt payoff journey myself and my debt payoff journey really started probably In June 2018 is when I revealed to the world my debt and a way to hold myself accountable on my debt payoff journey, so I announced it on Instagram and it's something I've been working on since I always had Although I have debt, especially after leaving college, I went with student loans and credit card debt, but my debt journey really began.

I came back when I was in college. I had to deal with some self-confidence issues and it was those... confidence issues and how I felt about myself that was largely my spending that triggered it what's what's the underlying cause of what made me leave. and spending money on clothes at the tanning salon and getting my nails done and all that different stuff to offset the self-confidence issues that I was really dealing with and it took me a couple of years to realize that that was my trigger. of expenses, so when you're on a debt payoff journey, what a lot of people don't understand is that a debt payoff journey doesn't mean you're just making debt payments, a debt payoff journey is really about learning how to manage your finances in a way that allows you to successfully prepare for the future so you don't go into debt in the future.

Also, the debt repayment process is about making the right decisions with your money to avoid going into more debt, so for me what happened in my life is that I would pay off all my debts but end up using my credit cards again. I would pay it all off and then rack up my credit cards again and the reason is because I never really found a system or method that would deter or set me up financially from having to use my credit cards. I would pay off my debt, I would celebrate, but I had nothing in place to prevent it from happening again and luckily I now have my paycheck budgeting method for my budget and actually my entire method is completely designed to discourage me from feeling ever the pressure or need to use credit cards now I just finished paying off all my credit card debt $26,000 is what I ended up paying I paid off all my credit card debt a couple of months ago, but I'm officially going to be shouting that I am one hundred percent debt free by the end of January.

I'll finish paying off my car loan and my student loans, hopefully, by the end of January. So what's the number one question I actually get, especially when you're just starting out. Your debt payoff journey is where you start and it can really get pretty overwhelming when you're dealing with multiple credit cards a car loan your student loans paying your mortgage is like what debt do I start with and when do you start a debt payoff journey that you need to

create

. I call it a

plan

of attack for your debt. A step-by-step system you can follow to ensure you get out of debt the quickest and smartest way.

There's a snowball method and there's the avalanche method and I get a lot of questions on my Instagram, which one do I use? Is there one I should use over the other? So let me explain the difference between the avalanche method and paying off your debt with the highest interest rate. first and it does so because it will save you the most interest payments over the life of your debt. If you use the snowball method, you'll pay off your debt with the smallest balance first, which is why I'm wondering which one I should use. and I always have to say that it really depends on you, so on my debt payoff journey I started with the snowball method because I wanted to see progress pretty early in my journey, of course, when you tackle the smallest balance first.

I'll see that progress pretty early on in your journey with the Avalanche method, after I used the snowball method and got rid of some of the smaller balances on my credit cards first and then switched to the Avalanche method because seeing how much I was spending on interest. every month compared to how much I was going towards my debt principal, it made me furious and many people don't take the time to sit down and really calculate how much interest exactly they are going to pay when they are paying off their debt. but it can add up so I'm a numbers person and saving money on those interest payments became my priority which is why I chose the Avalanche method so it depends on what will make you feel better what will make you feel what will make you feel good .

You then, are you looking professional? Are you motivated to see progress at the beginning of your journey or are you motivated to save money on interest payments and that determines which method you're going to use, but as far as starting your overall debt repayment? Dirty, it can get a little overwhelming. Do you know where to start? So with the debt payoff journey, you make the minimum payments on all your debts, but then you throw away anything extra that you have, any extra income that you have towards a debt. At a time, you address one debt at a time and the debt you address in your priority line depends on the method you are using, so today I want to show you a free online tool that I used to set up my

plan

of attack. for paying off my debt and it's a great eye opener and I think it will really help you get started on your debt paying off journey so let me show you I try to share rhetoric to remind the mirrors that with hard work and dedication it becomes motivation.

It's all about having a plan, your money, what gives you the truth, people, my life, you're like, oh man, so the free online tool that I want to show you today is from a company called vertex 42, it's the debt snowball calculator, now this one is free. Excel spreadsheet, but if you scroll down, I'll give you a link to this online tool in the description of this video so you can access it, but there are a lot of different options for downloading, so you can download it in sheets from Excel and Google, depending on which one. device you're on, so I'm on a PC, so I'll download the version of Excel for 2007 or later.

Just hit the download button, hit Download again and it will download to your computer, so we'll open this up. this is what it looks like when you first start, when you first open it, they'll give you some examples and for this video, I'll use the examples that are preloaded in the Excel template, but the first thing you need to do is change the date to the start date of your debt payoff journey, so if it's today, you would type in today's date and the next thing to start your debt payoff journey is a couple of different things you need to know, so this it's kind of a disclosure and it's the scary part that a lot of people don't really like to do because they don't like seeing all their debt written down, but it's really important.

So you want to write down all the debt that you have with your creditor, so in this example they have it with card number one, car loan number one, but what I did was write down the credit cards that I had, so I wrote down my Discover my capital a card my my car only my student loans navient but we are going to use this example but you can write whatever you want you can totally alter or change these cells that I need you to write for each debt interest rate for each debt and the minimum payment that must be made about that debt every month, so that's the first step to writing down your debt and having it in front of you, and that's the first and the next, as you can see.

In this example, my minimum monthly payment on all my debt is two hundred and seventy dollars and I have a total debt balance of twenty-six thousand five hundred dollars, so let's say, for example, that I know that I can make my minimum payments of two hundred and seventy. dollars, but I also have an extra hundred dollars to pay my debt each month, so you might be wondering how do I know how much extra money I had to pay to pay my debt and that's where having a properly functioning budget now comes into the picture. If you need help setting up a budget, I've provided a link in the description of this video that will show you how to set up that budget, but it's important because you need to know how much extra you have each month to pay off your debt.

So, let's say in this example that not only can I afford the two hundred and seventy dollars a month to make my minimum payments, but I also have another hundred extra dollars to put toward my debt, so my monthly payment becomes three seventy, your monthly payment in this Excel worksheet is your minimum payment plus anything extra you can write off from your debt and you can see that will give us an initial snowball of $100. Now they use the term snowball payment. It's a term that just means paying additional debt beyond your minimum payment. for us that's $100 and if you have questions about what any of these are, you can hover over and it will tell you what to enter for each of those cells, but with our example here, if we pay the 270 a month plus our extra hundred. dollars and when you go down and look at the strategy that is currently set up for the snowball method and that lets you know that you are going to pay off your debt with the lowest balance first in this example, it puts it in order for you, so this is the priority line that I was talking about this is the priority in which you are going to pay off your debt using the snowball method is the smallest balance first, which is your car loan number one thirty two hundred dollars.

You can also see how many months it will take to pay off your debt, what month and year you will be debt free, but one of the most important things is how much interest you will pay over the life of your debt and that is using the snowball method, but what say you want to try the avalanche method and see what it would be like for you and your debt payoff journey, there's an arrow down and there are all these different options on how to pay off your debt, so if you just click on Avalanche method , it will change the table down here and with the Avalanche method it will pay off the debt with the highest interest rate and for us in this example, that is card number two, it has an interest of thirteen point five percent, so there is a Couple of things I want you to know.

Remember how with the snowball method we were going to be debt free in December 2028? With the Avalanche method, you will pay off your debt a little faster and see how much interest you saved. using the snowball method that you were paying by, let's take it back, you were paying seventeen thousand dollars in interest over the life of your debt, when you change that to the avalanche method, it goes down from seventeen thousand to fourteen thousand, so this is a great online tool to Ask yourself: okay? If I use the Avalanche method, what would that look like in my real life for my debt payoff journey versus the snowball method?

I like to show people how to play with these two methods to give them an accurate picture of their debt payoff journey. But not only that, it is important to see how much interest you will pay over the life of your debt. Now you might be asking down here there's just a little chart to show you what your interest is over the life of your debt and here. It's your snowball now your snowball will increase on your debt payoff journey because once you're done paying off credit card number two, the minimum payment plus the extra hundred dollars you were using will be applied to credit card number two. credit number one, the next debt. priority, that's why they call it the snowball effect: you're essentially increasing your payments by higher payments by paying off one debt at a time and using what you were paying on your first debt, then tackling your second debt and so on, but one.

One of the questions I get is what happens during my debt payoff journey where I can afford to make over a hundred dollars a month, so I suggest that once you choose your debt payoff method, don't change anything in these boxes because This graph here acts as your calculator. He wants to go to the end. There are tabs at the bottom and you can't see it because my screen recorder doesn't really pick it up, but there are a couple of different tabs. At the bottom you want to go to the payment schedule, this is where you will enter information.

Now it tells you that you have chosen this avalanche by paying the highest interest rate first and that you are making a monthly payment of three hundred. and seventy dollars and this breaks down your payments over the life of your debt, it's exactly what it's going to look like now, let's say, for example, during the first year in January, the first month of my debt payoff journey, I can earn an extra $200 in my payments. Instead of a hundred, there's an extra area here, just type in any additional income that you can put toward your debt for that month and that will change your table, so if you're going to make changes to the amount that's making your debt toward your journey of debt payment towards your debt in a given month, be sure to write it in this additional tab here in the payment calendar tab at the bottom; you don't want to touch the tabyour calculator once you have it This is the free online tool.

Another thing I really want to suggest you play too is play with your payments. This is something that really motivated me to save as much money as I could for my debt budget because I want to show you, let's say instead of just $100 we have $200 to pay off our debt, so our payment becomes 470 to have 200 additional dollars. Look at it as just adding an extra hundred dollars to my debt payoff journey. I shaved three years. pay off my debt, pay off the due date and see how much interest I saved, almost $5,000. I saved on interest just by adding an extra hundred dollars and when I saw this when I started, I said, "Oh my gosh, well, if I can do that." and reduce that time of my debt, pay after anything and save that amount in interest.

I want to put everything I can towards my debt because I saw the crazy impact of adding extra payments to my debt every month and that's what I want you to play too is play with this monthly payment it's a great motivator man once you can Seeing that you can save years and interest on your debt payoff journey, it's worth moving forward to find that extra money in your budget now for me. That meant eating out less, reducing my food costs, challenging myself to save more each month, so if you have any questions about this free online tool, you can always ask questions in my private Facebook, TV and Family community, and I'll be there.

Happy to answer any questions. there, if you found this video useful, share it and don't forget to subscribe.