Personal Budget and Debt List – Put it Together

To Set a Course to Be Debt Free, you make a list of your debts, and then make a budget to see what you spend today, then you analyze your budget to see what expenses you can cut. Let’s assume you have done all of these steps, and you now have the following information:

You have four debts to pay off to become debt free:

  • $10,000 credit card at 11% interest
  • $500 pay day loan at 30% interest
  • $10,000 line of credit at 8% interest
  • $5,000 department store credit card at 24% interest

You have organized these debts in the order from highest interest rate to lowest, so your list looks like this:

  • $500 pay day loan at 30% interest
  • $5,000 department store credit card at 24% interest
  • $10,000 credit card at 11% interest
  • $10,000 line of credit at 8% interest

You made a budget, and you have determined that by cutting your expenses you can free up $500 per month to use toward debt repayment, over and above the minimum payments you are already making each month.

Now it’s time to put it altogether: you allocated the money you have to the debts you want to repay.

This month it’s easy: you have $500 to pay towards your debts, and your highest interest rate debt, your payday loan, is $500, so this month you will repay your payday loan in full.

For the next ten months you will use the $500 towards your department store credit card, since at $500 per month it will take ten months to pay off your $5,000 credit card (assuming you are also making a minimum payment to pay the interest each month).

Then, after your payday loan and department store credit card are paid off, you attack your $10,000 credit card. Of course by that point you will no longer be paying your payday loan, or making minimum payments on your department store credit card, so you should have even more money to pay against your credit card. You may have $600, or $700, or more to use against that credit card, so you can pay it off faster.

That’s the plan; keep revising your budget as you pay off debts, and make a plan to pay off your high interest rate debts first.

Tomorrow: once you start paying down your debt, learn how to avoid the biggest debt pay down trap.

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