How to Create a Plan to Pay Off Debt

do you have debt today I'm gonna show you the first steps you need to take on how to start a debt payoff journey and how to finally get rid of your debt once and for all as I strive to live a life I love on a budget that I can afford welcome to the budget mom YouTube channel today we're gonna be talking all about debt and I am very passionate when it comes to this subject because I myself am on a debt payoff journey and my debt payoff journey really started probably back in June of 2018 is when I revealed to the world my debt and a way to keep myself accountable on my debt payoff journey and so I announced it on Instagram and it's something that I've been working towards ever since I've always had debt though I'm especially after leaving college I left with student loans and credit card debt but my debt journey really started I'm back going when I was going through college I was dealt with some self-confidence issues and it was those self-confidence issues and how I felt about myself that pretty much they were my spending triggers it what it's what the underlying cause of what made me go out and spend money on clothes in the tanning salon and getting my nails done and all of those different things to compensate for the self-confidence issues that I was really dealing with and it took me a couple of years to figure out that that was my spending trigger 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 that you're just making debt payments a debt payoff journey is really learning to manage your finances in a way to set yourself up successfully in the future so you're not going into debt in the future as well debt payoff journey is all about making the right decisions with your money to prevent going into debt any further and so for me what's kind of happened in my life is I would pay off all of my debt but end up using my credit cards again I'd pay it all off and then I would rack up my credit cards again and the reason is because I never truly found a system or a method that deterred me or set me up financially so I didn't have to use my credit cards I would pay off my debt I would celebrate but I had nothing set in place to prevent it from happening again and luckily I now have my budget by paycheck method for my budget that really my entire method is fully designed to deter me from ever feeling the pressure or the need to use credit cards now I just got done paying off all of my credit card debt $26,000 is what I ended up paying paid off all my credit card debt a couple of months ago but I'm officially going to be screaming that I'm a hundred percent debt-free by the end of January I'm gonna finish paying off my car loan and my student loans hopefully by the end of January so what the number one question I really get especially when you're just starting your debt payoff journey is where do you even begin and it's really it can get pretty overwhelming when you're dealing with multiple credit cards a car loan your student loans your mortgage payment it's like what debt do I even begin with and so when you start a debt payoff journey you need to create I call it a plan of attack for your debt a step-by-step system that you can follow to ensure that you get out of debt in the fastest and smartest way so 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 and is there one that I should use over the other so let me kind of explain the difference the avalanche method is paying off your debt with the highest interest rate first and you do that because it's gonna save you the most and interest payments throughout the life of your debt if you use the snowball method you're paying off your debt by the smallest balance first and so I get the question which one do I use and I always have to say it really depends on you so for me on my debt payoff journey I started with the snowball method because I wanted to see progress fairly early on in my journey of course when you're tackling the smallest balance first you're gonna see that progress pretty early on in your journey with the Avalanche method now after I used the snowball method and I got rid of some of my smaller credit card balances first then I switched the Avalanche method because seeing how much I was spending an interest every single month versus what was going to the principal of my debt it made me furious and a lot of people don't take the time to sit down and really figure out how much exactly is going to interest when you're paying off your debt but it can add up so I'm a numbers person and saving money on those interest payments became my priority and so I chose the Avalanche method so it depends on with what is gonna make you feel better what are you gonna feel what feels right to you so is it seeing pro are you motivated by seeing progress early on in your journey or are you motivated by saving money on the interest payments and that's kind of determine what method you're going to use but as far as starting your overall debt payoff dirty it can get kind of overwhelming with you know where do you even begin and so with the debt payoff journey you make your minimum payments on all of your debts but then you throw anything extra that you have any extra income that you have towards one debt at a time you tackle one debt at a time in which debt you tackle in your line of priority is depend upon which method you're 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 huge eye opener and I think it will really help you get started on your debt pay journey so let me show you I try sharing rhetoric to remind mirrors that there is that with hard work dedication to turn motivation it's all about having a plan your money what gives you the truth people my life you're like oh man [Music] 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 is a free Excel spreadsheet but if you scroll down and I'll be providing a link to this online tool in the description of this video so you can access it but there's many different options to download so you can download it in Excel and Google sheets depending on which device you're on so I'm on a PC so I'm just gonna download the Excel version for 2007 or later you just hit the download button hit download again and it's gonna download onto your computer so we'll open this up so this is what it looks like when you first get started when you first open it up they're gonna give you some examples and for the purpose of this video I'm gonna use the examples that are pre-populated in the Excel template but the first thing you need to do is you need to change the date to the start date of your debt payoff journey so if that's today you would write today's date and the next thing in order to get started on your debt payoff journey there are a couple of different things that you need to know so this is kind of the eye opener and it's the scary part that a lot of people don't really like to do because they don't like to see all of their debt written down but it's really important so you want to write down all of the debt that you have so your creditor so in this example they they have it by card number one auto loan number one but what I did is I actually wrote down the credit cards that I had so I wrote my Discover my capital one card my my car alone my navient student loans but we're gonna use this example but you can write whatever you would like you can totally alter or change these cells that I need you to write down the of each debt the interest rate for each debt and the minimum payment that you have to make on that debt every single month so that's the first step getting your debt all written down and in front of your face and so that's the first one the next thing as you can see in this example my minimum monthly payment on all of 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 instance I know I can make my minimum payments of two hundred and seventy dollars but I also have an extra hundred dollars to throw up my debt every single month so you might be asking well how do I know how much extra I had to throw at my debt and that's where having a working successful budget comes into the picture now if you need help setting up a budget I have 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 every single month to throw out your debt so let's say in this example not only can I afford the two hundred and seventy dollars a month to make my minimum payments but I actually also have another hundred dollars extra to throw at my debt so my monthly payment then becomes three seventy your monthly payment in this Excel worksheet is your minimum payment plus anything extra you can throw out 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 extra debt payment past your minimum payment so for us that's $100 and if you have questions about what any of these are you can just hover over and it will tell you what to enter in 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 come down and look at the strategy it's currently set up for the snowball method and that lets you know that you're gonna be paying off your debt with the lowest balance first in this example it puts it in order for you so this is that line of priority that I was talking about this is the priority in which you're gonna pay off your debt using the snowball method it's the smallest balance first which is your auto loan number one thirty two hundred dollars you can see also how many months is gonna take to pay off your debt what month and year you'll be debt free but one of the most important things is how much interest you're gonna pay over the life of your debt and that's using the snowball method but what is let's say you want to try out the avalanche method and see what that would look like for you and your debt payoff journey there's a down arrow and there's all these different options on how to pay off your debt so if you just click on the Avalanche method it's gonna change the table down here and with the Avalanche method you're gonna be paying off the debt with the highest interest rate and for us in this example that's card number two it's got thirteen point five percent interest doing that there's a couple of things that I want you to be aware of do you remember with the snowball method we were gonna be debt free December of 2028 with the Avalanche method you're gonna be paying off your debt a little bit faster and look how much interest you saved so using the snowball method you were paying about let's bring 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 drops from seventeen thousand to fourteen thousand so this is a great online tool to ask yourself okay if I use the Avalanche method what does that look like in my real life for my debt payoff journey versus the snowball method I like to show people to play around with these two methods to give them an accurate picture of their debt payoff journey but not only that it's important to see how much interest you'll pay over the life of your debt now you might be asking now down here is just a little chart to show you this is your interest do over the life of your debt and here is your snowball now your snowball is going to increase on your debt payoff journey because once you're done paying off credit card number two the minimum payment plus the hundred dollars extra that you were using then gets applied to credit card number one the next debt priority so your that's why they call it the snowball effect you're essentially snowballing your payments into higher payments by paying off one debt at a time and using what you were were paying on your first debt then tackle your second debt and so on but one of the questions I get is well what happens during my debt payoff journey where I can afford to make more than this hundred dollars a month so I do suggest that you once you choose your debt payoff method don't change anything in these charts because the this chart here is acting like your calculator you want to go down here to the bottom of there is tabs across the bottom and you can't see it because my screen recorder really isn't picking up on it but there's a couple of different tabs across the bottom you want to go to payment schedule this is where you're going to be entering information now it's letting you know that you've chosen this avalanche paying the highest interest rate first and you're making a monthly payment of three hundred and seventy dollars and this breaks down your payments over the life of your debt is exactly what it's going to look like now let's say for instance during the first year in January the first month of my debt payoff journey I can make $200 extra in my payments instead of the hundred there is an additional area here you would just simply type in any additional income that you can put towards your debt for that month and that's going to change your table so if you are gonna be making changes to how much you're making in your debt towards your debt payoff journey towards your debt in any given month make sure that you write it in this additional tab here on the payment schedule tab down at the bottom you don't want to touch your calculator tab once you have it set so this is the free online tool another thing that I really want to suggest that you also play with is playing with your payments now this is something that really got me motivated on saving as much money as I could for my budget to throw at debt because I want to show you let's say instead of only $100 we have $200 to throw out our debt so our payment then becomes 470 to have 200 extra dollars look it by just adding an extra hundred dollars to my debt payoff journey I shaved three years off my debt pay off due date and look at 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 first started I'm like oh my gosh well if I can do that and shave that much time off my debt pay after any and save that much in interest I want to throw as much as I possibly could towards my debt because I saw the crazy impact of adding extra payment to my debt every month and so that's what I want you to play with is also playing with this monthly payment it's a great motivator man once you can see that you can shave off years and interest off your debt pay off journey it's worth going through to find that extra money in your budget now for me that meant eating out less cutting my food costs challenging myself to save more every month so if you have any questions on this free online tool you can always ask questions over in my private Facebook community TV and family and I'm happy to answer any questions over there if you found this video helpful please share it and don't forget to subscribe you

Channel: THE BUDGET MOM

Views: 71,716

Rating: 4.9359193 out of 5

Keywords: pay off debt, debt, debt free, debt journey, how to start paying off debt, budget, budgeting, the budget mom, thebudgetmom, how to budget, budget mom, snowball method, avalanche method, dave ramsey

Id: xyVm4aP3GXY

Length: 19min 1sec (1141 seconds)

Published: Thu Dec 27 2018