Implementing a Debt Payment Plan
The next step in my overall plan was utilizing my debt list to implement a debt payment plan that fits my goals. I created another worksheet to track my progress for my debt accounts which includes credit cards and student loans. Then, I accessed each of my accounts online and gathered more detailed information including:
- Total Amount Owed
- Interest % Rate
- Minimum Payment Amount
- Due Date
I used this information the fill out my Debt Progress Tracker worksheet. This worksheet allows me to keep track of my progress on each debt account every month. Finally, I utilized my debt list to prioritize the debt and institute a debt payment plan.
Debt Payment Plan Strategies
Generally, there are usually two strategies that are recommended to pay off debt. Those strategies are the avalanche and snowball methods. There are pros and cons to each but you should use whichever method works best for your situation. Every person’s story is different so choose the preferred method that is best for you.
The avalanche method prioritizes debt in order of the highest interest rate to the lowest. Only minimum payments are made on debts and any extra money is applied to the debt with the highest interest rate. After the highest ranking debt is paid off then the next debt becomes the priority until all are paid off. This method will often save you money in long-term interest paid. However, it can take a while to pay off the first debt, especially if the balance is large, so it may not feel like you are making progress quickly. Remember that every payment is a step toward the goal.
Example of Avalanche Method
|Balance||Interest % Rate||Priority Order|
|Credit Card $4,200||19.49%||1|
|Credit Card $12,300||16.99%||2|
|Car Loan $17,000||6.80%||3|
|Student Loan $3,000||4.00%||4|
The snowball method prioritizes debt in order of the lowest balance to the highest. Similar to the avalanche method, minimum payments are made on all debts and any extra money is applied to the debt with the lowest balance. Once the highest priority debt is paid off then the next debt becomes the priority until all are paid off. Certainly, the advantage to this method is that it creates motivation by providing positive feedback from paying off smaller debts quickly. The momentum really picks up as each small debt is paid in full.
Example of Snowball Method
|Balance||Interest % Rate||Priority Order|
|Student Loan $3,000||4.00%||1|
|Credit Card $4,200||19.49%||2|
|Credit Card $12,300||16.99%||3|
|Car Loan $17,000||6.80%||4|
Choosing My Debt Payment Strategy
During my debt research, I stumbled across a debt reduction calculator that I used to figure out which debt strategy would be best. It is an Excel spreadsheet that was super easy to use. I entered my debt information into the table and was able to toggle between the avalanche and snowball methods which auto-calculated other fields on the spreadsheet. It estimated the total interest paid, total months to pay off and the debt free date. There was also another sheet that used the information I entered along with the chosen debt strategy which then created a detailed estimated debt payment schedule.
By using the debt reduction calculator, I was able to choose a strategy and decided to go with the avalanche method. According to the calculator, both methods estimated that I would be debt free around the same time frame. Therefore, saving on interest became the deciding factor since there wasn’t a major difference in estimated debt free date.
At this point, I was ready to finish filling out the remaining fields on my Debt Progress Trackers. I used info from the Excel spreadsheet to enter priority order field on the trackers and stacked them in order.
Applying Debt Payment Strategy
Tracking my debt payment strategy on a monthly basis is integral to my overall plan. Since I selected the avalanche method, I prioritized the debt accounts based the order of debt with the highest interest rate to the lowest. The Debt Payment Strategy worksheet is intended to track monthly and total overall debt payoff progression.
Monthly debt details are written on the Debt Payment Strategy worksheet based on priority order. I utilize information from the Debt Progress Trackers to fill out the Debt Payment Strategy worksheet. Details tracked includes balances, interest rates, due dates, minimum required payments, and payment details. Additionally, I keep track of any extra debt payments made during the month.
Categorizing with Color Coding
A color-coding scheme is incorporated and the debt accounts are highlighted in certain colors based on the paycheck when I intend to pay the bill. This is a visual cue that allows me to quickly identify the group of bills to be paid each paycheck. The color-coding used on the Debt Payment Strategy worksheets contains the same color-coding scheme used on my Budget Calendar which keeps it consistent and easy to manage.
Finally, I look at the starting balance, total payments, and ending balance which provides a quick summary of progress for the current month. In addition, I calculate a summary of debt progression between the current month and previous month along with the total overall progress. There are several easy calculations that I use to identify the debt payoff trends.
Ideally, the trend should continue downward as debt is paid off and reduced. However, it’s possible that there could be set backs because life is unpredictable and unexpected things can happen so don’t let that get you down if this happens. If you find yourself in this situation, take comfort in knowing that you can make small adjustments to get back on track.
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