Debt $ense

I’ve been posting bits and pieces during the last few weeks about ways I’ve found more money to attack my debt. Those are specific to my situation. But here’s a look at the underlying approach I used that you can adapt to your situation:

1. Figure out where your money goes. As painful as it can be, add up all the regular bills, track your spending for a week or two and figure out what you are now spending money on.

2. Collect your debts to get the total picture. This was easy in my case - just one credit card and one student loan. But lots of people have much more complicated debt situations and need to write them all down to figure out just how deep they’re in.

3. Automate it. Everything. Your paycheck, your bills, your retirement acount. Even your charitable donations. The less you have to do, the easier it is to stick to your plan.

Now that you’ve looked at your current situation, go ahead and figure out how to improve it.

4. Pick one debt to attack first. You can pick the lowest balance or the highest interest rate, whichever you’re more likely to stick with. Put the minimum toward everything else, then put whatever is left toward killing that first debt as fast as possible. Which brings me to step 5…

5. Pick up your spending information from the first step. Now that you know where your money goes, start pruning the excess away. For some people, it’s the daily coffee trip. (What do you think Bach calls it the Latte Factor?) Others grab takeout every night. Maybe you have the extra-special cable package with 283 channels, even though you only watch four. Figure out what you can cut, and add that up to get a monthly number.

6. Pay your debt weekly. This is where online banking comes in handy. First, it can help reduce, ever so slightly, your interest charges. Second, you almost always see a lower number when you check the balance, which is a powerful incentive. And finally, you’ll pay the equivalent of one extra payment each year. To get that weekly payment, divide the monthly number by four.

7. Look for ways to gradually increase that amount. Say this month you cut back on cable to the basic package. After a few weeks, you realize you’re not spending all that much time watching it. Cutting it completely would save $60 a month - that’s an extra $15 a week toward your debt. Or you decide to eat out once a month instead of twice a month. Mabe that’s another $10 or $20 a week. Next month you start babysitting for a family down the street every other Friday when the parents go out on a date. There’s more money you can add.

8. Don’t just cut expenses. If you noticed in the previous tip, I mentioned bringing in more money through babysitting. That might not be your cup of tea - it’s certainly not mine - but there is probably some way you can bring in more money. Maybe get a weekend job as a waitress or cashier. Start an odd job business. Spread the word about your amazing petsitting skills. Mow lawns. The possibilities are endless if you spend enough time brainstorming.

9. Keep going. Once you kill that first debt, roll all of that money over to the payment on your second debt, and convert it to weekly payments as well. Since you’ll have the minimum from Debt 2 plus the total from Debt 1, your payments will be even higher, which will kill the debt faster.

10. Celebrate success. Set goals, track your progress and celebrate success. Paying off debt is a liberating feeling, but sometimes it can get lost in the daily grind of sticking to your budget. Make sure you mark and celebrate those milestones - they’ll give you renewed energy to vanquish that debt.

I stopped by the book fair today and got (in paperback) “Start Late, Finish Rich: for $2 and “It Pays to Talk” by Charles Schwab and his daughter for $3.50. New, not used, but with black marker on the bottom edge to show it’s a damaged book. (It still reads the same, so who cares?)

There were plenty of other PF books, including on of Suze Orman’s, several of Dave Ramsey’s and two of Jean Chatzky’s, but I didn’t want to spend more than $6. The Schwab book is one I’ve been hearing about lately, so I wanted to try that. I also wanted a David Bach book I could write in, but didn’t much care which one since the general principles are the same. (They also had Smart Couples, but that is obviously less applicable since my sweetie and I aren’t that serious.)

I also checked out the consignment store, but didn’t bring clothes up. Good thing, since they’re only buying summer stuff now, and they don’t buy on Saturdays. The next time I’m up there on a Monday for choir I’ll bring summer stuff. The good news is commission is 50 percent, and given the prices I saw marked on clothes, I could do very well on some of my items. But they buy seasonally, so it will take several months to fully convert everything. Still, it’s one source of income.