Welcome Mia Jones! She is going to share some ideas on keeping ourselves motivated during the long haul. Paying off debt and developing financial fortitude are not easy or quick. They are worth it.
Let’s be practical. paying off debt is not a piece of cake. For most people, it could take years to get out of their debt slump. During the long journey of debt repayment, it’s quite natural to have ups and downs.
Sometimes, it seems like the debts can be paid off easily. But sometimes, you may feel like your entire life could be spent on paying off those debts. You can literally feel like you are sacrificing so much, but no result!
Well, these feelings are absolutely normal if you have huge debts but a small income.
It could take a long time to get rid of the debts, but you can enjoy the happy ending!
However, you have to do one more thing along with making debt payments i.e. motivating yourself. Yes, since the debt repayment process has both blue and bright sides, you have to get ready to beat with debt blues throughout the journey.
Don’t take more stress! There are numerous ways to keep yourself motivated throughout your debt pay off journey.
Here you go!
1. Fix a goal
It is easy to feel lost when you don’t have a goal or plan. When you have a plan, you know what you need to do next. So, move according to your goals. You may want to get rid of the credit card debts first instead of student loans. So, set your goals accordingly. However, keep making student loan payments while concentrating on other debts.
2. Pick the right debt repayment option
If you have multiple debts and you just make payments towards debts randomly, you might end up paying more in interest. This could take a longer time to get out of debt as well.
Thus, you need to choose the tight debt repayment method. There are two popular debt repayment methods, the debt snowball method, and the debt avalanche method.
A) Debt snowball method: In the debt snowball method, you need to arrange your debts from the smallest to the largest outstanding balance. Now, target the smallest debt on the list. Make larger payments to the smallest debt while paying the minimum to the other debts in the list. Make sure you make minimum payments to the rest of the debts. Otherwise, you will start accumulating interest on them. Keep making large payments to the smallest debt until you pay it off. Once you pay off the smallest debt, target the next debt which is smaller in the list.
Keep following the method until you repay all the debts one by one.
B) Debt avalanche method: Debt avalanche method is different. In this method, you need to arrange your debts from highest interest rate to lowest interest rate. After that, you need to make larger payments to the highest interest rate debt while paying the minimum to the other debts. Once you repay the highest interest debt, target the second-highest interest debt and follow the same.
It is advisable to follow the debt snowball method if you are a newbie in the debt payoff journey and have multiple debts.
Why should you follow the debt snowball method?
3. Get the visual effect
Visual effects can be motivating as you can see the progress of your hard work. If you are following the debt snowball method, then create a debt snowball tracker and hang it in your room. Mark a cross sign after paying off the target debt on the list. It can remind you of how much you have achieved. You will certainly feel motivated.
4. Write down a list of “Why”
You need to keep some other visuals to stay motivated throughout the debt payoff journey. Since the debt payoff is not an easy task, you might feel irritated and go out of your focus. Thus, you should be very clear about the reasons.
Ask yourself why do you want to repay your debts?
Write down all the reasons you want to ditch your debts in a list and hang it in your room.
Whatever the reasons are, make sure they are always in front of your eyes. This will give you the motivation to make lifestyle changes for good.
5. Read success stories
You are not alone, somewhere some people are also sacrificing just like you to get out of debt. Even some people have already succeeded and currently enjoying their debt-free life. So, nothing is more motivating than relating yourself with someone with the same problem. Well, you shouldn’t go to the library to read heavyweight debt-free guidelines. You can come across many debt payoff success stories online.
Many personal finance bloggers have shared their own stories of debt payoff journey that are really motivating.
6. Reward yourself to celebrate your first win
Everybody has to reward themselves for achieving success. No matter how small the achievement is: you should appreciate yourself. If you are following the debt snowball method, then you should celebrate once you pay off the smallest debt.
Every $1,000 of debt paid, you can also reward yourself.
There are many ways you can celebrate your win.
7. Think about how your life will change after getting out of debt
To stay motivated during the debt payoff journey, you should focus on how your life will change once you become debt-free. Think about the ways your life will change when you have no debt.
Once you will become debt-free...
8. Share your feelings with someone
Sharing the thoughts and feelings is very important especially when you are dealing with stress. The debt payoff journey can be a stressful one as you may have to make many lifestyle changes. So, you might feel irritated or unenthusiastic. Sometimes, you can become confused out of overly encouraged.
But, once you share your feelings of irritation or encouragement with a supportive person, a sense of accomplishment grows in you. You can even get ideas from the person to whom you are sharing your thoughts.
So, tell someone about your journey who can give you support instead of judging you.
Lastly, always remember paying off debt is a long process but one of the worthy processes that can change your life for good.
The key to avoiding unnecessary financial stress is saving our money.
Emergency savings accounts, investment accounts, and Financial Freedom all take money to make happen. Spending unwisely definitely is a hurdle to the foundation of financial peace.
But what if you don’t particularly want to be frugal?
Frugality is Money for What Matters
Our focus should always be to have money for what matters, and that means getting your priorities straight.
Everyone’s priorities will be different.
For example, I am not a big fan of video games so buying electronics is not high on my priority list. However, I know several families that do put video games at a high priority because they have family game nights that revolve around them.
Start with a List
Make a list of things that truly matter to you. Things that represent stability and make you feel happy.
Mine looks like this, in no particular order:
Make a Plan
With my list, I am able to keep a plan of what I need to buy to feel safe, secure, and happy.
This also helps me build certain habits that prevent me from spending unnecessarily.
For instance, the first thing on my list is nice clothes and shoes.
I buy kids’ clothes only twice a year, at a local week-long consignment sale.
Below is a short video of a haul I got at the sale in Spring 2018. Click here for a short primer on how to shop second hand and saving money on kids' clothes even if you don't consignment shop.
I go early in the week to get shoes before they are picked over. Then I go back on half-price day to get clothes.
I get nice name brand clothes for almost nothing. It’s my habit not to pay more than $2-$4 total for any item, although certain items like rain boots do usually cost more.
I avoid overspending caused by shopping too much. I don’t wander in stores to window shop, and when I go to stores like Target or Kroger, I avoid the clothes section entirely.
Once I have the clothes, I must keep them clean and dry to prevent them from getting moldy, ripped, or otherwise ruined.
This means I must do my best to keep up with laundry. I must keep laundry detergent at the ready. And I have learned to mend clothes and remove stains.
Clear Picture of Stability
Once you have a clear picture of what your stability looks like, you can start trimming away at your buying habits so that you never have to wonder where your money went.
This habit combined with tracking your spending will help you cement control over your money.
Wasting your money won’t seem so tempting because you will have a clear picture of where you need it to go to conquer your stress.
Don’t get so focused on saving money that you start to act compulsively or hurt others.
All the money in the world won’t comfort your kids if you are constantly fighting burn out.
Don’t exhaust yourself so that you can’t enjoy your time with your children or lose a sense of your self.
For me, the line between miserliness and frugality exists at the point to where I am worried about saving money more than I am worried about my children learning joy.
Where does the line exist for you? Let’s start a conversation! Comment below.
I have spent this week talking about different kinds of debt, how they affect your credit score, and how to build credit while avoiding debt.
But why am I harping on debt so much?
Most people are fine with having a car loan to have a nice, reliable car. And even I took on a mortgage to escape a negligent/abusive landlord.
The Best Way to See Debt
Debt is a black hole for money. Seriously.
First, itâs a way for a company to drain every single cent they can from you, especially if the debt accrues interest. You are paying much more for something than its worth.
And there are several ways they can trick you. Some places will charge interest AND a finance fee, money they charge for extending the credit line.
Then you need to think about how often your interest is compounded. Some may compound interest monthly like a credit card. Sometimes, it is compounded DAILY. This means that you owe more money EVERY DAY.
Second, itâs making you an indentured servant. Companies are taking advantage of your desire to have it right now to ultimately control you. If you have much debt, you are locked into your job. Changing jobs or losing your job ultimately means losing your entire way of life.
Debt racks up so fast, and people often end up in so much debt that even the wealthy are living paycheck to paycheck!
Why? I bet itâs because of the Denomination Effect. We donât realize how quickly small expenditures add up to big amounts. When deciding to take on each debt, we think about it like this: â$250 a month? Thatâs so cheap! I can afford that!â
But if you end up having a boat, 2 cars, a house payment, a computer, etc all for $250 each and your actually paying out $1000 each month for debt.
Your Sell Your Life for Money
Employment is trading your time and effort for money.
When you work, you are literally trading your life for money. You canât do anything else with that time, and if you are underperforming, then you get fired.
If you get federal minimum wage, $7.25 an hour, then it takes you Â½ an hour to buy one gallon of milk at $2.99 (my local price).
Do you want to trade 30 minutes for a gallon of milk?
Doesnât sound like a fair trade to me! Iâd much rather drive an older car, save up to pay for a new phone or computer when I need them than to toil away for someone else for a starvation wage.
As our family has grown, we have realized that we are much happier with fewer things than with less time.
Our kids donât care how many gigs their tablets have (yet), and they are satisfied with the cheapest Amazon Kindle that I scored for $50. And they all share one, too.
Why? Because they would rather have me at home with them watching baby robins hatch or playing in the mud.
Things havenât made us happier as a family. Time together has.
Not only do I get to spend my time where I want to be, but I get the opportunity to teach my kids by example important character traits like saving money, discerning the difference between wants and needs, a hard work ethic, and to value relationships over things.
Debt is not a speed bump on the road of a happy life; it is a brick wall. It holds you back. If you want money for what matters, you canât waste it on debt.
The first step to Financial Independence is getting rid of installment debt.
Remember installment debt are those debts that you are trying to pay off. Medical debt, car loans, mortgages, etc.
An installment debt is just a black hole for money, but sometimes they are inevitable. Accidents happen, and sometimes your emergency account won’t be enough.
Whether you are just starting out learning to manage your money better or if you just had to take on an installment debt, there are ways to pay it off quickly.
First Step -- Strategy
There is a trick to getting out of debt quickly and saving on interest charges!
You must pay your minimum payment and then pay extra toward your principal. You must either mark your check as for principal on the memo line of your check or talk to a representative to make sure the extra payment is earmarked toward principal.
The less principal on the balance, the less interest you have to pay since interest is calculated as a percentage of the principal amount.
Second Step -- Plan
You will need to gather the balances for every debt you need to pay off. Then you need to figure out what method you will use to pay them off. This will help you map out the best way to become debt-free.
Bankruptcy is an option for those who have a lot of debt.
There are two kinds of bankruptcy.
Chapter 7 bankruptcy will let you keep some or most of your property and discharge most types of unsecured debt. Some property may be sold to pay your creditors. This type of bankruptcy is usually limited to those whose income is less than the median for their state.
Chapter 11 requires that you repay your creditors for a term of 3-5 years. After that, your remaining debt is discharged. The only qualifications are that unsecured debt is less than about $419,000 and secured debt be less than about $1,258,000.
Bankruptcy does follow you for a while. First, it does crash your credit score. Then, Chapter 7 bankruptcy stays on your credit for 10 years, while Chapter 11 falls off after just 7 years because you do pay back some of the money.
After some time, you can bring your score back up. Especially if you get a secured credit card, keep your utilization rate low, and make timely payments.
Student loans can’t be discharged in bankruptcy.
If you have a lot of credit card debt, there are companies that will negotiate lower balances for you. You may stop paying your debtors, instead putting monthly payments in a savings account to use to pay the debt off all at once.
Be careful when using this method. Some companies are legitimate, while others are scams.
Consolidation is when you take multiple debts and combine them into one, usually by using a personal loan or consolidation company.
This can save you money on interest, and make things simpler to pay off.
Negotiating with Debt Collectors
Don’t be afraid to negotiate with your debtors. The worst they can do is decline your offer, but plenty of 3rd party debt collectors will settle for less than you owe, especially if you offer them a substantial portion of the balance at once.
Paying it Off with Muscle
If none of the above options are for you, and you just pay it off using step 1 mentioned above, then plan it strategically.
There are two methods people use for paying down debt quickly.
Avalanche Method pay off big debts first, then small debts.
Snowball Method pays off small debts first then large debts.
You must continue paying minimum payments on all your debts so you do not rack up late fees or acquire more interest.
Once you pay off a debt, then put that money towards another debt payment so you are constantly paying more towards your principal!
I have mostly student loan debt. What kind of debt do you have?
What should you do if you want to get a credit card to improve your credit, but you don’t have good enough credit to qualify for a credit card?
Get a secured credit card.
Unsecured Credit Cards vs Secured Credit Cards
Many people don’t realize there are two types of credit cards.
Unsecured cards are credit lines extending to you without a deposit. These are more high risk investments for the credit company, because if you don’t pay your bill, they must fight you for the money.
Secured cards are issued once you pay a deposit, usually equal to the credit line. For example to obtain a card with $300 credit line, you must pay a $300 deposit. This way the credit company does not lose much money if you don’t pay the bill.
Secured cards act very much like unsecured cards. They are issued by Mastercard, Visa, etc, and you can use them just like an unsecured card. They also usually have interest accruing if you do not pay off the entire balance each month.
And both cards report to the credit bureaus so there is no difference in how they affect your credit score.
What if you're in between?
There are unsecured credit card companies that cater to people with bad credit. Well, they are able to do that by charging outrageous fees. If you have bad credit, read over the terms carefully before you decide.
You may save much more money by choosing a secured card over the unsecured card because of those fees.
Secured Credit Cards Vs Prepaid Debit
People assume there is not much difference between secured credit cards and prepaid debit cards like Green Dot.
That is false.
First, the money you spend on a prepaid debit card is your own money. With an unsecured credit card, your deposit sits in an account. If you pay diligently for a good length of time and raise your credit score, you can close the secured card, open an unsecured card, and get your deposit back!
Second, prepaid debit cards tend to run higher fees than secured cards.
Third and most important, prepaid debit cards do not report your payment history to the credit bureaus. Simple put, prepaid debit cards do not improve your credit.
How to Use a Credit Card to Improve Your Credit
It is simple to drastically improve your credit in a relatively short amount of time with credit cards, whether they are secured or unsecured. It may not be easy though. Financial fortitude is a must.
Looking to learn more about the basics of good money management? Join my Facebook Group of like minded moms!
Interested in other ways to improve your credit or why credit is important for FIRE? Leave me a comment below!
Obviously, a pretty important part of FIRE is getting rid of debt. I see so many finance professionals advocating going completely debt-free. Cutting up credit cards, but is debt really bad?
Well, the answer will surprise you.
It’s just not that simple.
Not all Debt is Created Equal
There are two kinds of debt:
Installments are what most people think of when they think of debt.
Car loans, mortgages, hospital bills, and any kind of debt where you are working toward a zero balance are installments.
This kind of debt is literally a black hole for money. And even worse, interest usually makes you pay 2-3x more than what the product is worth.
I will give you an example. When we moved into our new home, the fridge did not work. Frustrating. We went to Rent-A-Center just to see what they wanted for one.
They wanted $1000 same as cash for a model that costs $500 at a big box store. And then if we couldn’t pay it off in 6 months, that price jumped to a whopping $1800! More than 3x the price in at Lowe’s or Home Depot for the same model.
Needless to say, we went without a fridge for a while until we found an affordable one on Facebook Marketplace. We ended up paying a whopping $100 for an older model that still works great.
Installments are the debt you want to avoid!
Revolving debt is any debt that you pay down or off, and the credit line is still available to you. So basically credit cards.
Credit cards are demonized because of their outrageous interest rates. Seriously, 18-25% or more, sometimes per month.
And for a long time, that scared me away from them.
But the problem with avoiding credit cards is that your credit score will suffer incredibly without them.
The absence of revolving debt kept us from buying a home on a mortgage.
This was a very personal decision for us because we were under a lease with an abusive landlord and needed out.
The only way out was by buying a home using the landlord as a realtor. We fought with them over feces and bedbug-infested carpet, over repairs that never got made, and trash from the previous tenants that stayed in our yard for weeks until WE hauled it to the dump.
Arkansas has no laws that protect tenants rights. And we suffered for it. So we decided to take on the installment debt.
However, even though we had decent credit, no bank or lender would actually lend to us because we had no revolving debt. We were told several times to get a credit card and come back in 2-3 months. So we did.
We easily got a mortgage, a GRANT for our down payment and closing costs. The only payment due at closing was for our first insurance payment.
Revolving Debt and Your Credit Score
Even if you never plan to pursue debt again, like getting a car loan or mortgage, you still can’t ignore your credit score!
Your credit score can keep you from getting jobs, affect insurance premiums, deposits on utilities and cell phone contracts, and much more.
Having good credit score assures potential employers or companies that you are fiscally responsible and live within your means. This makes you a very tempting customer!
Beating the System
So if you want a good credit score and don’t want debt, what can you do?
So if you want a good credit score and don’t want debt, what can you do?
The answer is really quite simple:
This ensures that you get the maximum benefits of revolving credit but rack up no debt.
Step number 2 is the most important step in this process.
Creditors use a calculation called Utilization Rate to represent fiscal responsibility. This is calculated as what your balance is divided by your credit line.
So for example, if you get a credit card with a limit of $300, and only use $30 each month your utilization rate is 10%. Low utilization rates drive your credit score up like a rocket blasting off!
You need to know more about credit and credit cards! Leave any questions you have below!
Today, we get to the most exciting part of our reboot! The long term goal is financial independence! Maybe even FIRE! Never heard of it?
Eryn from Simply Successful Sisters is going to give you an introduction.
What is FIRE?
If you’ve been in the personal finance space in recent years, you’ve probably heard the term FIRE (financial independence retire early) pop up more and more. While the concept itself isn’t new, it’s garnered additional attention lately.
Let’s break the term FIRE up into two parts:
Financial independence is a term meaning your assets are enough to support you financially such that you don’t need a standard 9-5 job. This means that should you need to quit your job, you have enough money to get by each day. The goal for many Americans is that you become financially independent at some point around the age of 65 so that you can retire from your job.
This is where the retire early component comes in. With the FIRE movement, many participants strive to become financially independent long before traditional retirement age and therefore decide to retire early from the workforce. Those who retire early spend time doing whatever they want with their time instead of being chained to a desk for 30+ years. Many start their own businesses, volunteer for charities, gain new skills, and spend time with loved ones in this newfound time.
How Does Someone Achieve FIRE?ChooseFI wrote a wonderful post with the 10 Pillars of FI that summarizes the movement in great detail. There are several intricate strategies for becoming financially independent, many of which are simple to understand but take discipline.
To boil it down to the simplest components, FIRE is about keeping your expenses low (very low in some cases) and investing as much of your income as you can. Many members of the FIRE movement are saving 50% or more of their income each pay period and investing it
Why? Well, if you supercharge investments for a decade or so, those investments will eventually hit a point where they are making so much money for you that you no longer need a 9-5 job. Mr. Money Moustache is known as one of the pioneers of the FI movement and he wrote about the Shockingly Simple Math Behind Early Retirement. The math works.
People across all income levels and across all industries have successfully reached financial independence by:
Essentially, you spend time and money on things that add value to your life, and stop doing the things that don’t.
Can the Average Person Retire Early?
The average person following the average first-world spending habits cannot retire early. According to Magnify Money, the median American household has just $12,120 in savings in March 2019.
If that’s you, you are not in a good position to retire early...yet. With some intentional effort, you can become financially independent and even set yourself up to retire early - if you want!
First, you will want to take an assessment of your finances by setting up a budget with your income and expenses.
Second, read some of the aforementioned resources to get a pulse on the main tenets of financial independence. Educating yourself will help you understand if this something you strive to achieve.
Third, take action. Taking in all the financial knowledge in the world means nothing if you don’t do anything with it. So take steps each day to get closer and closer to your financial goals.
Should the Average Person Retire Early?
If you save a significant portion of your income and make smart financial decisions, you can retire early.
Financial independence looks different for each person, so even if you don’t aspire to retire early, you will benefit from learning about the FIRE movement.
I’ve always been a financially-savvy person but since I’ve gone down the rabbit hole of FIRE, my finances have exponentially improved. I don’t know that I’ll ever retire early, but knowing I have that freedom makes every sacrifice I make in getting me there worth it.
Eryn is one half of Successfully Simple Sisters, a website she runs with her twin sister, Kaila, to help women simplify their faith, family, and finances. Eryn is a digital marketer by trade and has a passion for all things web, especially for optimizing websites, SEO, and marketing analytics. Eryn loves making things from scratch and curling up with a good book. She enjoys spending time with her husband, Kody, and her son, Drew (2).
Now is the best time to start an emergency savings account.
The earlier the better.
First, start considering your emergency savings account as self-care.
Seriously. A main point of stress for most Americans is money.
We need to recognize that saving money can prevent stress.
It is inevitable that there will be a point in everyone’s life when we need to replace something or an expected emergency happens.
Prevention is the name of the game!
Second, you will fill more in control. As you keep saving, developing that habit, you will see that you can control your money. You can do this!
Third, the earlier you start, the more you can save.
Personally, we have to save little amounts at pretty irregular intervals. That means our savings grows slowly. That’s ok.
The important point is that we are on the board and building a habit.
The great thing about online savings accounts is that you can often open them with a very small initial deposit.
Fourth, once you have funds in a savings account you will be earning interest. The interest you earn is measured in Annual Percentage Yield or APY.
This is a type of passive income and that’s good!
And different banks will have different procedures for paying interest.
But the great thing is your interest earned will grow as your savings account grows, provided the money stays in the account. This is great motivation to prevent us from dipping into our emergency accounts during nonemergencies.
Last, and the most important reason to start a savings account now, is to quit procrastinating. Today is the day to get it done. Take the first step to control! Even is that step is just a few dollars.
I know you know about online savings accounts because I wrote about them in my emergency savings account post.
Did you know online checking accounts are an option, too?
Benefits of Online Accounts
There are a lot of benefits of online accounts, both for checking and savings.
You may be skeptical that all the institutions providing online checking or savings accounts are sketchy or suspicious, but the truth is the opposite.
Of course, there are some scams out there, but you can go with a trusted name like Bank of America, US Bank, Regions, etc.
Just make sure the bank in insured by the FDIC. It protects your deposits up to $250,000. Insurance is not a law so not all banks carry protection.
Drawbacks of Online Accounts
The negatives of online banking mean that they are not for everyone.
Are you considering an online account? Let me know in the comments below!
I know a lot of you guys are like, “Well, where is all this money for these accounts going to come from? I can’t always make ends meet!”
Well, here is where Financial Fortitude comes in.
I know a lot of you guys are like, “Well, where is all this money for these accounts going to come from? I can’t always make ends meet!”
Well, here is where Financial Fortitude comes in.
Sometimes, you will need to forgo the convenience food to save for it. I am not going to play you. It is hard.
Sometimes, you will have to keep working even when you want to quit.
Sometimes, you won’t have the ability to save. That’s ok, too.
And sometimes, you have to save it while you have it!
A Big Idea
If you have been following in my Facebook group, you have probably seen this meme:
As a large family mom, my tax refund is the time of year when we have the most money.
And it’s really tempting to use it for fun things that would make us feel really good like a trip or such.
But these last few years, we have worked hard to invest it in some way.
For example, with this last one, we bought some blogging tools like a computer and subscriptions to tools for graphic design and social media.
We also invested in a minivan and paid with cash! Please note, it’s a 2001 model so not that expensive. But we were also able to prepay insurance, and saved on that monthly payment.
Our tax refund also goes to buying in bulk certain items like shampoo, toothpaste, deodorant, trash bags, aluminum foil, etc. Things that I want to always have around the house.
And this has to do with accounts?
Don’t blow your tax refund. Use it to start or increase an account.
You can put back your emergency fund all at once. You could add to your long term savings account or retirement accounts.
You could start an investment account. When you are investing big amounts, its best to work with an expert.
Please leave me a comment if you’d like me to write a guide on finding a good stock professional!
One Last Word
One thing that is important to mention here is that many people use their tax refunds to help pay off debt quickly.
This ultimately helps them free up money during the month, in the long term!
More about debt is coming next week!
How do you use your tax refund? Tweet me @addictivemess!
Hi! I am Ali, a homeschool mom who is passionate about science, managing my money and time well. Unfortunately, with an army of tiny faces, I am always still kind of a mess.
I was tired of not having a judgement free place to talk about money troubles with other moms. So I created one!
Click on the picture above to join my Facebook Group, Money Savvy Mommas.