Believe it or not, but “Debt Reduction” can almost be a fun process! During the time that I was repaying my mortgage and two car (all at the same time), hitting certain milestones that I created was almost fun! I thought I would share my process and how to get the most out of it.
Step 1
Use a spreadsheet to track your debt payments and the effects on the amount you owe! What if you don’t want to spend money to buy a spreadsheet? Consider the spreadsheet program in Open Office Calc or use Google Spreadsheets.
This step is my base, without this step I wouldn’t have been as motivated! I took it a step further and made a what if page to calculate how changes in the amount I paid would affect the life of the debt and the total interest that banks would receive.
Step 2
For this step, I created financial milestones! Once we crossed these financial milestones (really mortgage milestones, but the idea is similar), we would reward the crossing of the milestone by going out to eat at a decent, but not too expensive restaurant.
Note, we chose to make the milestones significant. So we set our milestone at 20% intervals of the amount owed. So if our debt was $100,000, we would celebrate at 80,000; 60,000; 40,000; 20,000 and obviously at zero!
Step 3
At this step, you’ve paid off your debt and how you have all of this extra money rolling in because your debt obligations are gone… so what do you do? Well, in my case I decided to use the extra money to buy stocks that provide a dividend. Then my idea is to use the dividend to eventually pay for those fun expenses (like lunch, eating out, vacation, etc) while at the same time pumping my extra earned income into solid dividend stocks and other new investments. That dividend could then serve double duty and cover hard expenses (food, utility, taxes and other non-fun expenses) in times of tightening.
What about retirement, 529s and other important expenses?
Do it all, or at least that is what I did. During my repayment plan for my cars and house, I continued to fund my 401k and 529 plans for my kids. I was even able to put a little bit in my Roth IRA. It was tough, and instead of paying my mortgage off in 5 years, it took my a bit over 10 years to pay everything off.
I believe that a balance approach towards finances is the best approach.
The key is to make the best of your situation, and enjoy life!
Here wishing the best for your finances,
MR
I’m devoted to Google spreadsheets! I love the idea of a “what if” page.
What I really like about google spreadsheets are the fact that you always have access to them as long as you have access to a computer or smart phone.
I’m not so crazy about the latency though, but for simple spreadsheets it’ll suffice.
This is a wonderful idea. I like the concept of celebrating at predetermined intervals. Makes for motivation for a whole family. Congrats on having no mortgage.
Thanks!
Creating such milestones really helped to keep me in the game. While I was the primary driver of debt reduction in my family, my other family members enjoyed the occasional dining out as a reward too.
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Good plan! I’m still impressed with everyone who paid off their mortgage.
I need your opinion on whether we should pay off the mortgage on our rental…. see today’s post at my site. 🙂
I think your approach is perfect that way you are going it. In fact, I bet other than your business debt you are debt free and that’s great 🙂
Another thumbs up for google spreadsheets!
Best of all, there are so many budgeting templates available that are absolutely free!
Google docs and apps are making me a more orgainized person all around! I’m a big google fan 🙂
I think I enjoy spreadsheets more than most people lol. I have a three year budget laid out in Google Spreadsheets and I would have gone further but that is when all of my debt will be paid off and I didn’t know what to do with all that extra money! Maybe I’ll be house shopping by then.
Spreadsheets are a wonderful application (especially google’s)! Without a spreadsheet, I wouldn’t be nearly as organized!
I am favor of anything that will work! Too often, we think of one size fits all. Congratulations on being debt free.
Thanks, yes I agree, whatever work for the individual. I know my system works because it’s did so for me, but there are many paths to the destination.
I love using spreadsheet’s to track my savings, budget, and pretty much anything related to money. Your 3 steps are a great step. You’ve motivated me to tracking my car loan payoff and student loan debt!
Thanks, it’s a great way to go about it! By doing what I did above it’s almost like a game! It was so much easier back then! I miss those days.
I agree! Google is really accessible and simple. I love keeping track of my expenses. It’s like those skinny girls write down their food to keep track of calories (that’s sad) but you get the point. Tracking expenses and monitoring payments through spreadsheet is not limited to accountants or business people. Ordinary individuals should do it too, debt free or not.
I think people would be surpised how cool it is to track your debt through a spreadsheet. I knew exactly when I would pay off my mortgage and the total amount of interest I would pay! It was awesome!
I definitely did #1 and #2. I put my mortgage amortization table into a spreadsheet and I coded the payment green when it had been paid. Early on was the most fun because you could knock out a few payments with extra principle (as most of the early payments were interest).
My milestones were different though. I remember a biggie for me was the month where my principle payment exceeded my interest.
I have abandoned my spreadsheets recently and again don’t know why. I think it’s because savings tends to go up and down and I don’t feel like I can track it as easily monthly as debt reduction.
In my spreadsheet, I had that row highlighted in a different background color. Surprisingly, I didn’t celebrate it though (go figure), but I was pretty happy on that day! 🙂
I haven’t used Google Spreadsheets, but now I have to check it out.
It is exciting to pay off debt. I will be even more excited when I can put all the money I put toward my mortgage toward investments!!!
Very true, investments are more variable and unpredictable, but at least we’re making money instead of paying money!!!
As a total spreadsheet geek, I tend to do every bit of planning with Excel. I like the idea of celebrating debt milestones.
Lotus 123, Excel, Quattro Pro, Google Calc, Open Office… have all been my friends 🙂
I love spreadsheets, and can honestly say they have changed my life with respect to finances.
the milestones help create a feeling of accomplishment 🙂
Your advice on making sure you keep saving for retirement and college, even while you’re paying off debt is a good one … especially if you’re paying mortgage debt, which is low-interest. There are a lot of arguments over whether it’s better to pay off the mortgage early vs. invest that money in the market, so it’s best to make sure you’re not robbing yourself of tax-benefit retirement account investments if the only debt still on your books is a mortgage.
Exactly, I totally believe in a balanced approach towards finances. While there may be some strategies that may beat my approach, there is a higher number that is trailing my approach. It all depends on the unpredictable, but if you use a balanced approach, we take most of the risk out of the unpredictable…
I even had a tiny bit of shoot for the money investment (and I still do). All part of that balance 🙂
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I had no idea what is a Google spreadsheet is, but I should check it out.