My credit score has jumped up 50 points from “fair” to “good” in the last 2 months! This is very exciting for me, as moving through this process, I will be able to take advantage of better interest rates on my loans.
Working through the emotional aspects of my own worth, and taking The Daily Om Course on “A Year to Get Rich with Purpose,” I have made some more positive changes to my money strategies from when I originally posted here. As Sunday marked Day 70 for me, and my awareness of my thoughts and actions surrounding money has increased tremendously, I decided it was time for an update! While the program has not instructed me to make the changes I am about to explore, the awareness I have gained from the program has helped to inspire these shifts.
Disclaimer: I am not a financial advisor. I do not play one on TV. Instead, I am sharing with you my personal strategies for getting out-of-debt and changing the way I use my financial resources. Take what you like. It is my hope there is something here for you.
Through signing up on LendingTree, I found a personal loan that worked for me. It allowed me to decrease the interest rate I was paying on credit cards by 13 percentage points. I chose a loan whose payments I could afford that did not have any additional fees such as early payoff fees, origination fees, etc.
With this, I moved a good amount of money off of credit cards. I now understand this was instrumental in improving my credit rating, as credit card debt is counted against us more!
Low Introductory Rate Credit Cards
The personal loan did not cover all of my credit card debt. So when I received a promotional low introductory credit card offer, I jumped at the opportunity to apply for it. After seeing that the offer would save me quite a bit in accrued interest, even after the transfer fees, I took it! Also, while the interest rate after the introductory period is high, I plan to move the remaining debt to a lower loan before the zero rate expires. Even if I do not move it, I will still have saved a significant amount of money in interest fees when it’s all said and done.
Making Payments Count
The Early Bird
By making payments when the money is available, instead of waiting until the due date, I am reducing the amount of interest accrued on the loans/cards, as the interest charges are based on the average daily balance. The sooner the payments are credited, the lower the average daily balance becomes and the less interest is charged. Some cards also include the interest charges in the next months’ daily balance; a double charge!
Paying early also helps to decrease the risk of payments being received late, thus avoiding late fees as well as the potential to being smacked by a higher penalty interest rate.
The Snowball Effect
I have read different definitions of the snowball. This is how I am using this effect to my advantage.
- I calculated how much money I have each month to put towards my debt payments, as a whole. (let’s say $800)
- I ranked the debts by highest to lowest based on each debts’ interest rate (A to D).
- I then totaled the minimum monthly payments for each debt (B to D), EXCEPT the one with the highest interest rate (A). (let’s say $500 for B to D)
- Then I figured out the monthly payment for the highest interest rate debt by subtracting #3 ($500) from #1 ($800). Per the example: $800-$500=$300 for debt A.
- As each debt is paid off, the money I was paying from all prior paid off debts then goes towards the next in line highest interest rate debt. (After A is paid, then payments A+B are paid to B. After B is paid off, then A+B+C is paid to C, and so on). Hence the snowball!
Windfall Payments to Highest Debt
When I receive a windfall that extra money then goes towards the highest interest rate loan or credit card. This strategy keeps me from spending the extra money, keeping me trained to my budget. Also, it helps me to have more financial freedom in the long run. Note: this is a different strategy than I described in my original post.
After recently receiving a windfall, I decided to cash in some of my hotel honor points to take my kids on a mini-vacation. The windfall will then pay for our outings, meals and fuel/parking expenses. It’s been a few too many years since I’ve been on a vacation and I owe it to myself and my kids to get away for a few days.
Spreadsheet to Track Progress and Keep Me Motivated
I also created a spreadsheet that projects when different debts will be paid off. This is helping to keep me motivated, as money can be such an abstract thing for me. The spreadsheet also helped me to see how paying off the higher debts first, instead of the lowest balance debts – which some financial advisors recommend, actually saves more money over time.
An Attitude of Gratitude
It can be easy for me to fall into the trap of beating myself up for the financial choices I have made that “got me here.” When I begin to have those thoughts, I find that I feel defeated; something that leads me to make poor choices. Instead of going down that rabbit hole, I choose to be grateful for the changes I am making NOW. I also acknowledge to myself that if I COULD have done differently, then I WOULD HAVE! My power is in the NOW. Heck! I could have kept going down the path I was already on, too!
What strategies have you found to help you in changing your financial landscape? Please feel free to share!