How To Reduce Your Debts With ...
BuildWisely's Debt Reduction Plan

The main purpose of this Debt Reduction Plan chapter is to get you thinking about how tight you want, or don't want, your budget to be. If you feel that your finances are... ...squeezing you into a tight space, and you would like more room to breathe, consider this: If you don't have much in savings or find that your income/debt ratio is way out of whack a good debt reduction plan can help you find ways to change that. There are several ways to cut down on debt without reducing your quality of life. In fact, I will show you ways to actually enhance your life while being in, what I call the Saving Phase. You may find that you enjoy this debt "dieting", if you will... ...challenge and desire to continue using some of my techniques—even long after you have moved into your new home. One of the greatest ways to reduce debt is to control your spending habits. If you have control over spending, you can control how fast your debt disappears. First, get a copy (don't use an original) of your completed Income Statement that you prepared for your Personal Financial Report. Second, put a check by the expenses that you can drastically cut down on or even live without until you are in your new home. Third, and most importantly—stick by your plan diligently to reduce your debt! The following examples are simple solutions for saving money. As you progress down the list, each step will take more consideration, thought and planning. Conserve Utilities and Water to lower your bills. Shut off lights during the day and open up the curtains. At night, use minimal lighting, when you will be leaving the room for a while—get into the habit of shutting off the lights. Evenings by candle light. Re-visit the past and create ways to honor those that have not had it as fortunate as we. Either turn down the heat (winter) or turn up the cool (summer) at night and while you are gone. A great way to help you remember to do this, is to invest in a programmable thermostat. They cost very little, but will save very big bucks! After it's installed program the temperatures as desired for different times during the day and night and it will conserve your utilities all by its self! Cut down on taking long showers or deep baths. Only treat yourself on rare occasion. Cut down food expenses without cutting down on nutrition. One of the biggest expenses we have, next to our home mortgage, is food. There is an extreme amount of leeway is this area to save money. For example: Plan your meals for at least week at a time. Scan your cupboards and freezer for on-hand food items that you can use in your menu plan first. Make a shopping list for any additional items needed and only purchase the items on your list—nothing else. Buy fresh produce only when you will be able to eat it before it spoils. Some produce will only be fresh for 3 days after purchase, therefore, plan your meals that use the most perishable produce within the first 3 days of your menu to avoid necessary waste. Use coupons for anything you can, that you will actually use, and shop on days that offer double and triple couponing. Shop the newspaper for sales and do comparative shopping—some stores will even honor other store's ads. Prepare budget meatless and meat stretching meals for the majority of the week, then once a week prepare a more elaborate meal. Take one day a week to prepare a couple of economic volume meals that will each feed your family for at least two meals. Doing this helps you cut down on utility usage, gives you a night off from cooking, and stretches your dollar. Freeze half of each volume meal, in bulk or individual meal proportions, then re-heat and eat on those busy days or nights. Eat in, not out—make it fun and entertaining: Choose a restaurant theme and prepare the meal accordingly. Everyone can enjoy getting the "restaurant" ready. There are several themes to choose from, here are a few: 50's Diner, Greek Revival, Italian Bistro, French Cuisine, Spanish Enchilada, etc., make homemade signs and decorations out of items around the house then save them for next time you go "in" to dinner! Have different chefs prepare the meal—if you dare! Children also love to make dinner—for the younger ones, have them prepare meals that do not require cooking or cutting. Dine AlFresco...outside that is. Take your meals outdoors when the weather permits. Breakfast, lunch or dinner...dine like the French! Use candles and a few white outdoor Christmas lights on your patio or deck to help create an ambiance for after dark dining. Cut out or down on the cable or satellite television bill. This is a great place to save money. When you want to watch a movie, do the following. Either totally have your cable or dish disconnected, or reduce down to the minimum basic channels. Rent a video on occasion. There are video stores that rent out older movies for just a few cents. Rent only the more expensive and first pick movies once a month. Make popcorn the old fashioned way then add butter if you wish. Have an Entertainment Night. Instead of just watching television or everyone going out for entertainment, stay in. Play Board Games, Card Games, Dominos, Charades etc... Have snacks prepared like milk and homemade cookies and then let the games begin. Try some old-fashioned games too! Have a skit night. Nothing is more fun than to put on a play. This is also a great way to get your neighbors together. Everyone has to join in on the fun and perform their role. You can tie this in with the following suggestion... Have a Dinner Theater Night. Rent video or DVD of a Theatrical Play or a Broadway show. Arrange a small table or card table and chairs in front of your television. Set the table like you would see in a nice restaurant. Be sure and add a flower in a vase (either silk or one from your garden). You will be sure to have front row seats! Have an Educational Evening. Instead of watching television, have your children put on an Educational Seminar. Have them "teach" you what they have learned in school. Include a question and answer session too...you ask, your children answer. Plan outings for free, or minimal cost. Picnic at the park. Preparing your own meals can be much less costly than eating out. Pitch a tent. If you like getting away for the weekend, camping can really be a really fun change of pace. Search out free festivals, musicals, and other happenings. Cut back on clothing budget and dry cleaning expenses. Check out the second hand and consignment stores. There are some great values and you can get barely used and never worn clothing for pennies on the dollar of their original cost. Sale, Sale, Sale. If you have the time to shop for sales, you can save a great deal of money. When you do this, however, be prepared to only spend what your budget allows—nothing more. Stretch your dry cleaning expenses by skipping a trip or two to the dry cleaner or by utilizing the new at home dry cleaning kits for the clothes dryer. Spend less on gifts. Nowadays, we tend to spend mere fortunes on gift buying. Be creative and think conservative. There are all sorts of ways to save money on gifts. Buy it only if it is...On SALE! Some times it pays to purchase gifts ahead of time. You will need to have a budget established then stick within your set boundaries. Make a Sentimental Gift Basket. For example: Purchase a small inexpensive frame and insert a special photograph, painting that you have painted, or an old family recipe that you have, then place it in a basket or container along with some other memorabilia or items to honor the occasion. Too often we give gifts that have no meaning. Why not show someone how special they are to you with sentiment. Liquidate, Liquidate, Liquidate: Sell off anything that you are not using on a routine basis. A good place to start is to sell anything you haven't used in the past year. If the item is sentimental, you will need to decide if it is something you can sell without regrets. Have a Garage Sale. This is a great way to get rid of things that have been piling up in storage. By getting rid of things now, you save from having to do it later, plus, it will prevent you from having to move unnecessary stuff to your new home. Sell any extra Autos. If you are not utilizing all your vehicles on a routine basis then they should go. Any extra automobile that you have sitting around is also costing you extra in insurance, tags, taxes and upkeep are wasting valuable money. Other Real Estate. For those that have other property that is more of a liability than an asset, it might be "wise" to put it up on the market. You will need to carefully weigh the pros and cons, but if this property is keeping you in the hole, dig yourself out and sell it off! Debt Consolidation Loan. If you are in tight cash flow situation with no room to work and have good credit, it may be wise to take out a Debt Consolidation Loan. Search for a loan with: a low interest rate, low fees, and no penalties for early payoff. Pay off as much debt as possible, then take the extra cash that was used to make those monthly payment and put it towards paying off the remainder of your other bills. After your bills are paid off, then make extra payments on your consolidation loan. By using this method, you will get your debt paid off several times faster, plus at the same time, it will save a great deal of money on interest. Now, after your consolidation loan is paid off, start applying that extra cash to an interest bearing savings account. You can build a nice little nest egg to use towards the equity in your new home fairly quickly. There are so many ways to save money that it is impossible to have one list that fits all. Therefore, you will want to analyze your expenses, fixed and non-fixed, to come up with a plan to reduce your debt and increase your savings. After establishing ways to cut down on expenses and/or liquidate those pesky assets to increase cash flow, you will want to apply those amounts towards reducing your debt. Our Personal Debt Reduction Plan: Following, is an example of the system my husband and I developed and used to drastically reduce our debt within an 18 month period: The first step was to find ways to reduce our unnecessary monthly spending habits. We then applied that amount directly towards paying off our all of our debt. Next, we had to figure out the most effective way to pay off our creditors. We decided to pay off our highest interest accounts first. In doing so, it enabled us to put more money directly towards paying principal rather than interest. I then created a Debt Reduction Goals worksheet to organize our plan and then put it to action. As you can see on the worksheet, the accounts were listed in order from the highest to the lowest interest rate. We continued making regular payments to all our creditors, but added an extra "principal" payment each month to one specific account at a time until all accounts were paid in full. As we paid off one account at a time, we would add that account's regular payment and the additional principal payment to the next account. In doing so, we created a "domino effect", where the principal payment became larger and larger as each account was paid off. Thus, allowing a for all the debt to be paid off at a much more rapid pace. Use the following illustrations with the following example: Let's take $250.00 a month savings (gained from unnecessary spending) and add it to the first account's regular payment of $30.00, which totals $280.00. Which, takes only two months to pay the account off in full. On the third month, take the 280.00 (amount paid on the first account) and add that amount to the regular payment of the second account on the list ($28.00), which brings the total target payment to $308.00. Now, that amount will pay that account off in 5 months. On the sixth month, take that $308.00 and add it to the regular payment of the 3rd account until that account is paid in full, and so on and so on... 1st account's monthly target payment: 250.00 + 30.00 = 280.00 2nd account's monthly target payment: 280.00 + 28.00 = 308.00 3rd account's monthly target payment: 308.00 = 45.00 = 353.00 Example of a Debt Reduction Goals worksheet that I created to use in our personal debt reduction plan. DEBT REDUCTION GOALS Creditor Interest Rate Balance Regular Payment Extra Principal Target Payment Normal Payoff Target Payoff Gasoline Card 21.0 % $545.64 $30.00 250.00 280.00 22 Months 2 Months Credit Card #1 19.5 % $750.00 $28.00 280.00 308.00 35 Months 5 Months Credit Card #2 18.25 % $868.00 $45.00 308.00 353.00 23 months 7 Months Credit Card #3 14.5 % $950.00 $49.00 353.00 402.00 22 Months 8 Months Signature Loan 12.0% $1245.00 $100.00 402.00 502.00 14 Months 9 Months Student Loan 9.25 % $3,500.00 $125.00 502.00 627.00 32 Months 13 Months Boat Loan 8.25% $5,472.00 $216.00 627.00 843.00 28 Months 16 Months TOTALS $13,330.64 $593.00 **Figures are estimated and may not reflect actual amounts**