financialfreedom | Chindeepinlife

When I moved back to the US in 2016, I had to work really hard to rebuild my credit. Shortly before I left in 2010, I was a victim of identity theft. It’s practically impossible, trying to get the IRS to respond to requests when you live abroad. A good credit profile includes a combination of different types of credit (installment, revolving, etc). It’s so damn easy to get into debt. Getting out is another matter. I used the snowball effect to pay off high balances, which meant I had a better-looking credit profile.

If you have not heard of the snowball method, this blog post is an excellent summary. Debt can pile up quickly, becoming overwhelming before you know what to do with it. Fortunately, there are strategies you can employ to pay down your debts, without going broke or insane in the process.

The snowball effect is an easy and convenient method of paying down debts, regardless of how much debt you have. Can you imagine what it would be like to live without debt? Your money would be yours, to do with as you please, instead of feeding the wallets of the rich. You’ll look forward to enjoying guilt-free vacations – paid for with cash – and buying your next car with cash, instead of credit. Picture the life you deserve in your mind and feel the feelings of relief. Next, make a plan to move toward this life, and put your plan into action.

Follow these tips to use the snowball effect for paying off your debts:

Pay off your smallest debts first. When you pay the smallest debt off first, you start a small amount of momentum that’ll build quickly. Write down all of your debts from smallest to largest, and then create a plan to pay off the smallest one first.
Small wins add up. Your personal finance strategy will be more successful if you feel motivated, which is why small wins are so important in the beginning. When you start paying off your smaller debts, you’ll find yourself feeling motivated to maintain your debt-reducing strategy.
Pay off the next smallest debt. Once the smallest debt in your list is completely paid, add whatever you were paying on that debt to the payment for the next debt in the list, essentially doubling your monthly payment on that debt. Once you tackle this debt, you have another win under your belt.
Eliminate all debt. Use the debt snowball to eliminate the rest of your debts from smallest to largest. As each debt is paid, add those payments to the next debt. Don’t worry about term lengths or rates unless two different debts have similar payoff amounts, at which point you should pay off the higher interest rate debt first.
Keep building momentum. Let the momentum continue, repeating the debt repayment process for each debt as you work your way closer and closer to financial freedom. Every payment moves you closer to your goal of being financially free.
- As you’re attacking the smaller debts first, maintain the minimum monthly payments for everything else. Do whatever is necessary to focus your attention on maintaining your plan and keeping this momentum going.
- Keep stepping up from bill to bill, paying off the next smallest, then the next smallest, and so on. After your credit card debt is taken care of, you can focus on other debts as well – to where even your mortgage is paid off.

The snowball effect is an effective debt repayment strategy. Utilizing this method of debt repayment will help you keep the momentum as you repay your debts so that you can get the job done and enjoy a life free from the constraints of debt.

Until the next post,

Best,

Juan

Where is Your Money Going?
At the end of each month, do you find yourself wondering where all your hard-earned money went? Discovering your financial drains will enable your money to work for you. Funding savings, debt repayment, or other things that are important to you instead of just disappearing into nothingness. A little detective work might be necessary, to figure out where your money is going. The best way to get a handle on your finances is to get everything accounted for, then tackle your financial goals.
How can we identify our money drains and improve our financial outlook? Consider the following tips:

Calculate all income. The first thing to do is calculate all sources of income for your household. Put together a chart listing income sources and amounts for the past 30 days. This will give you an idea of how much money is coming into the household, which is the first step to determining, how much is going out.
List your expenses. List all of your regular monthly expenses such as rent or house payments, car payments, credit card and loan payments, gas, food, utilities, cable, internet and others. Try to list exact numbers, or estimate if your expenses vary. This will give you a good idea of what your basic expenses are.
Track every penny. Spend an entire month tracking every cent that you spend. Write down your beginning balance, and every dollar in and every dollar out. This is the key to determining where you’re losing money.
Interpret the results. Compare how much money you’re bringing in, to how much you’re spending every month on bills, and other expenses. Are you spending beyond your means? Are you allocating money for savings, investments, and retirement?

If you have money drains, determine what they are. Are you spending $4.00 on an iced latte Monday through Friday? Is your dining out expenses much higher than you expected? Are you eating from vending machines or expensive fast-food joints at lunch, rather than brown-bagging it?
5. Put this information to good use. Armed with your written guide (below) to your income and expenses, you can control your finances more effectively. Once you have this information laid out in front of you, it will allow you to fine-tune your finances little by little, until you’re putting more money into savings and less into “money drains” from month to month.

Determine ways to reduce these money drains. Can you brew coffee at home to save money every week? Can you cook at home to save money on eating out? A few dollars saved every month in different areas of your budget can definitely add up to your benefit.

Once you determine how much money you have coming in and going out, start directing your money toward what’s really important. Trim down your expenses or find ways to increase your income. Do not spend beyond your means. Your financial future will shine much brighter when you prepare for the future you desire. Use this free Budgeting-A-New-You-Workbook to help you get started!

Next week, look out for simple ways to take back more of your time.

Until the next post,

Best,

Juan