tracking debt

The "I Knew It!" Benefit of Expense Tracking

Philip Brewer — Tue, 11 Dec 2012 10:36:49 +0000

It's worth tracking your spending because it's the only way to learn where your money is going. But it's worth doing for another reason as well. (See also: Track Your Spending. Or Not.)

Unless you're tracking your spending, you don't really know where your money is going. Not even if you know to the penny how much goes for your mortgage or rent payment, your car or student loan payment, your tuition payment, and all the other big bills in your life. That's because, as anyone who has ever tracked their spending can tell you, there's a lot of money in the small payments.

If you're not tracking your spending, you have no idea how much money is just leaking away in dribs and drabs, going for coffee shop coffees, fast food lunches, drinks with the boys, no-special-occasion gifts for that special someone, new gadgets, overages on data plans, pet food, lawn care products, vending machine snacks...

Getting a handle on that spending is the big reason to track it. But there's another reason — it's deeply affirming to confirm your sense that those big payments really are as big as they seem.

When I first started tracking my spending, I was only a little surprised to see that my biggest spending category was taxes. (And that was just federal income taxes, state income taxes, and FICA. I never drilled down to the level of breaking out sales tax, which would have added several percent to the tax category.)

My response, the first time I saw the pie chart with the biggest wedge being the one marked Taxes was, "I knew it!"

If you're one of the many readers working hard to pay off debt, seeing a big wedge of spending going toward debt repayment can be rewarding as well — all your effort and discipline reflected in a brightly-colored wedge. (This is true even though debt payment isn't really an expense.)

Those big wedges show what you're paying toward your most critical needs and most cherished wants. (Taxes being a special case — but surely staying out of prison is high on the list of needs and wants.)

Your spending should reflect your values. The big win of tracking your spending is that you can see whether it does or not. When you find a mismatch, you can adjust your spending to reflect what you really want.

That's a big win. But it may be an even bigger win when you find that there isn't a mismatch. It's great when you look at the top ten categories of spending and can say, "Yeah, I knew that. That's not only what I expected, it's just the way I think it ought to be."

There's real comfort in that.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Taming Your Debt: Aggressive Repayment Strategies

Kentin Waits — Fri, 03 Aug 2012 10:24:42 +0000

Why is it so easy to get into debt and so hard to get out? I think the answer lies somewhere in the machinery of our consumer culture. We’re constantly encouraged to buy things whether we can afford them or not. There are creditors lining up to finance whatever they’ve convinced us that we not only need, but rightfully deserve. And what happens when we find ourselves on that predictable but precarious ledge — teetering on the edge of financial ruin? There are more products and services to buy that can help us solve our financial problems. And (surprise!) not only do we need these essential tools, we deserve them!

If you see the sick cycle here, you’re not alone. More and more folks are waking up and realizing that taming debt just takes a bit of planning, some conscious choices, and some very hard work. Let’s explore a few strategies to tackle your debt and empower your financial future. (See also: How to Start Fighting Debt — Today)

Face How Much You Owe

The first step to any successful debt repayment plan is to get an accurate idea of exactly what you’re up against. Avoidance is not your friend; organize your statements, make calls, and determine exactly how much you owe to each creditor. It’ll inform the rest of your strategy and help prepare you for the next essential steps.

Go Cash-Only

I was tempted to make this the first step, but people tend to be much more motivated to adopt a cash-only life when they see how much they owe. Consciously choosing to spurn all but the most essential (read: life-and-death) debt is a vital piece of the puzzle. Put your credit cards on ice and resolve to pay with cash only. Consider rudimentary cash management systems like envelope budgeting to keep your spending in-check. Withdraw all the cash you'll need at the beginning of the month and divide it between envelopes that are labeled by expense. Force yourself to spend only within the parameters of each envelope's available cash. Nothing saps motivation like hammering down one debt while another one pops up somewhere else.

Chart It Out

Equipped with your figures, create a spreadsheet of what you owe. This doesn’t have to be fancy. Whether you use a computer and budgeting software or poster-board and a Sharpie, just take the information out of the abstract and make it visual. Keep your chart prominent and easily accessible to encourage updates maintain laser-like focus. Use it to track progress, make notes, document your successes, and motivate yourself along the way.

Start Communicating

Once you know how much you owe and can see the challenge ahead, it’s time to start communicating (if you haven’t already done so). Start a discourse between yourself and your creditors. Explain your situation — share the circumstances that helped create this debt and stress your motivation to pay. Ask if there’s any opportunity to lower your interest rates, have penalties waived, or set up a payment plan that will prevent interest from accumulating. Create a list of important customer service numbers to keep the communication channels open during the entire repayment process. This active communication does two things. First, it demystifies the debt and tames it in your mind. Second, it establishes a history of communication and positive interactions that often allow creditors be more flexible with terms.

Attach a Source of Income for Each Debt or Debt Category

Depending on your employment situation and time obligations, consider servicing each debt or debt category through a part-time job. For example, could you work in a coffee shop on weekends and direct everything you make to your car loan? What about tutoring students during the evenings and splitting the income between all your credit card debts? Though it may sound extreme, if your financial resources are already stretched paper-thin, this tactic creates a brand-new money stream that’s earmarked solely for debt repayment. It’s a powerful tool that can often tame debt faster than budgeting and re-budgeting a single source of income.

Pay Off the Small Debts First...and Fast

I know it goes against most number-crunching advice, but I’m still a fan of paying off the smallest debts first. Of course, every situation is unique and there may be extenuating circumstances that make this approach impossible. But if there are no immediate financial disasters looming, (i.e., foreclosure/eviction, repossession, wage garnishments, etc), consider making the smaller debts top priority and taking care of them quickly. This approach gives you a bit of breathing room to focus on the "big kahuna" debts, creates some positive reinforcement, and gives you that most essential tool of all — the encouragement to do it again.

More than likely, when that last payment is made you’ll experience some sort of natural exhilaration. You’ll look at that scrawled chart and all your notes and inadvertently find your motivation for the very last step, the one that goes almost without saying — stay debt-free.

Do you have a debt-defeating story? What methods did you use to tame your debt and start fresh?

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This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Ways to Track Debt

Debbie Dragon — Fri, 09 Sep 2011 10:36:11 +0000

Debt — it's the four-letter word nobody wants to think about. But if you're not thinking about your debt, you're not keeping track of it — and if you're not keeping track of your debt, you're probably not making much progress toward paying it off! Knowing exactly how much you owe, who you owe, and how much your debt costs is the first step to paying it off. I personally feel you can't effectively manage your debt without keeping track of your entire financial situation in general — which is why many of the tools listed here also provide ways to create and manage your budget in addition to tracking specific debts. Here are some tools to help you track your debt and better manage your money. (See also: 4 Places to Start Your Debt Management Crusade)

Spreadsheets

The Money Management Template from Vertex42.com is a free alternative to Quicken. For the average family, an easy-to-use spreadsheet for creating and managing a budget is all the functionality you need to stay on top of your finances without wasting time trying to figure out the extra “stuff” provided in most financial software. Plug in all of your expenses and income, and keep track of where your money goes. Once you have your budget in place, or if you're just looking for a fast way to track debts without worrying about the rest, you can use the Debt Reduction Calculator (with the snowball method for paying off debt) to focus on paying off your debts as quickly as possible.

DebtTracker from It's Your Money is a simplified Excel spreadsheet that allows you to see a list of your debts all in one place, and then sort them by type of debt, interest rate, or current account balance. You can see about how long it will take to pay off each debt and figure out a few financial metrics like how much of your available credit you're using or your debt-to-income ratio.

Personal Finance Software

Mint.com offers free personal finance software that will pull in information from all of your financial accounts (once you set it up). Use their goal setting options to create debt payoff goals, and you can see how your debt payments relate to the total money you have coming in each month versus where your money is going. As a bonus, you can also access your information via a smartphone and set reminders for bill payments.

The You Need a Budget software helps you assign a “job” to every dollar you earn. The personal finance software makes it easy to import bank transactions, monitor all incoming and outgoing money, and take free finance classes online that teach you both better money management skills and how to use the software. In the process of all this budgeting and financial management, you'll keep track of each of your debts and focus on paying them off. (Editor's note: YNAB is one of Wise Bread's recommended budgeting software. Click here to see screenshots and our review of YNAB.)

Smartphone Apps

Pay Off Debt, an app for iPhone, iPad, or iPod Touch, gives users a quick and easy method for organizing and keeping track of their debt. The app uses the debt snowball method for suggesting payments on each of your accounts and is the perfect solution for people who like to manage their finances easily from their phone, iPod, or tablet instead of their computer.

DebtTracker Pro also uses the snowball system of paying off debt, but you can choose from other built-in payment strategies or come up with your own if you prefer. The app will give you a recommended payment for each account based on your payment strategy, allow you to view progress of debts paid, and provide payment reminders.

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This article is from Debbie Dragon of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: