Many of us know about debt. Some of us know we have too much debt. There are always those that want to shake their index finger at us and tell us all the bad things about debt, but this post isn’t about judgment. So many families have faced unemployment, divorce, death, medical and many other hardships outside their control where judgment doesn’t apply – encouragement does.
Any power pay program has to start with a budget containing a thorough, accurate depiction of your household’s income and expenses. These should be updated any time there is a substantial change – monthly if you have fluctuating income or known expenses coming, like a kid planning to head off to college a year earlier than anticipated as I learned this year!
There are many cool tools out there to help us be successful with paying down debt. “Power Pay” programs that have you divvy up your net income and spend it out until you have eliminated your debt. Some keep envelopes for your budgeted expenses like Dave Ramsey’s program. Others are computer software programs or web-based programs like “Debt in Focus” the credit unions make available to their members. Our First Time Home Buyer Education Class text books offer worksheets, as do many Financial Fitness classes. I’m curious about what tools you have heard of for debt management that you find valuable…
Depending on the program it might be recommended you focus on the debt that bears the highest rate of interest, or it might recommend you knock out smallest balances first to get some successes under your belt. In my mind, since the goal is to pay the least amount of interest and have your available dollars pay off the debt as fast as possible, I would focus on the highest, non-tax deductible interest.
But it boilsdown to use whatever method leads to you being successful and sticking to it!
I work with a lot of families whose home loans’ terms are modified, many of whom received non-interest bearing principal deferments. Beware of chunking down on your mortgage payments if you have one of these, as the extra principal can go to the interest bearing principal balance owed on the mortgage first…folks with 2% modified interest rates they can deduct on their income tax returns probably want to pay other interest bearing debt down first! This would be the case with most of the mortgages taken out lately since they bear incredibly low interest rates. They might even come out ahead putting this money into interest bearing savings, compounding the interest THEN paying the mortgage down.
Money is a tool…why don’t you put it to work for you?
See you out there!!!