5/20/2010

Power Pay your Debt

OK, I made my commitment to saving but it is really hard because so much of my take home is already spent by the bills coming through the door. Breaking the cycle of debt can seem like peddling up a steep incline, but here is a trick that might just help.

Step 1:Create a budget that you can live on month to month. If you need help getting started, check out some of the partners with Virginia Saves most offer free helpful budgeting advice and often free budget worksheets to get started. For a FREE online resource, check out www.mint.com for a free electronic budgeting tool or visit www.crown.org/tools for free budgeting worksheets.

Step2: For the Debt Category, create a separate checking account and have the amount deposited automatically from your paycheck into that new account. The debt category will include all loans: mortgage, auto, credit card, personal loans etc.

Step 3: Pay all Debts from that new checking account. Any additional funds above the minimum monthly payment get applied to the account with the highest interest rate. The checking account will return to the minimum monthly balance after bills are paid.

Step 4: POWER PAY: Once the first account is paid in full, apply the amount that was paid to that account to the account with the next highest interest rate. This accelerated payment will expedite the time until you are debt free.Maintaining the separate checking account will keep you from being tempted to use the proceeds available once the first debt is paid off for regular monthly expenses. Once you are completely debt free including your mortgage, apply this account to grow your savings for retirement and other large expenses.

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