What if you’re just able to make your minimum payments each month? What if you’re overwhelmed by having debt in the five figures (or more)? Is there a way you can set up a system for you to pay off your debt faster without resorting to rice and beans for the next decade or so?

How Debt Snowballs Work

Watch your credit cards, you may be losing money.

You may have heard of debt snowballs, but never understoof how they can work for you. Let’s say you have 4 debts right now that are weighing you down:

• Visa: $500 – Minimum Payment is $20/month
• Mastercard: $1,200 - Minimum Payment is $50/month
• Car Loan: $250/ month  ($10,000 balance)
• Student Loan:  $150/month ($20,000 balance)

That’s a total of $470/month you need to have to just pay the bills. You looked at your budget and you managed to cut eating out a bit and save enough for $550/month. Using the debt snowball method you’d pay everything as you normally would except for the Visa. The Visa payments would go from $20/month to $100/month (your regular $20 plus the $80 you dug up by trimming your budget).

Once that Visa bill is paid off in about 5 months, you now take that $100/month and add it to your regular Mastercard payments to bring up to $150/month. After you knocked out, you take that $150/month you used to spend for your credit card bills and you contribute that towards your car loan. Now your $250/month car loan is being whittled down significantly since you’re now paying $400. You keep going until you pay off all your debts.

The great thing you notice is that you don’t have to greatly increase your debt reduction payments, you start with where you’re at and build from there. As you progress in your career, no doubt you’ll see small increases to your take home pay. You can use a portion of this extra money to speed up your debt elimination plan even further.

If you have a hard time building up your debt snow ball, settle for using snowflakes. Snowflakes are smaller sums of money that you throw at the debt as they come in. Think of the extra tip you got from your barista duties or maybe you got a bigger tax refund. As soon as that money is in your account, transfer a chunk of that out for paying down your debts. Don’t let it linger or you’ll lose that opportunity as it is easy to spend those little windfalls.

Making the Debt Snowball Easier – Automate It

Do you want to make the system even easier for yourself? Go ahead schedule your bill payments to handle your debt snowball plan. Once it’s in place, just check on your account monthly to make sure the payments went through and your balances are decreasing. It should take about 20-30 minutes of your time each month. It’s less stress and you’re setting yourself for success because you’re removing barriers that keep many people from paying off their debts.

 Staying Motivated While Paying Off Debt

After you knocked out the smaller debts that you have, it’s time to tackle the bigger ones. Even though you have a system in place that has been proven to work, you now have a new challenge - staying motivated and on course with your debt elimination plan.

It begins with breaking down your balance into smaller goals. Let’s take an example of a $40,000 student loan. How can you stay on track until you’ve paid it off? Here are a few suggestions:

• Keep a chart. Many of us tend to be visual people, so having a visible chart in our place can be empowering. Every time you make a payment go ahead and update your chart.
• Set up small rewards. When you get the debt down to certain levels, like $30,000, $15,000, then $10,000, and so forth you should celebrate.  Throw a party; take a long weekend, do something that you enjoy (that’s frugal) – you deserve it.
• Bump up your budget. It may seem counter-intuitive, but as you decrease your debt, you should adjust your budget to include more wiggle room to fun. For some people having

With time, you can get out of debt without stressing out or becoming overwhelmed.

Psychology of Money

What debts do you currently have? How much debt have you’ve paid off? How do you plan on getting out of it? Curious to see what affects your money making (or losing) decisions? Check other posts in the Money & Psychology series:

• Choosing Friends to Build Your Net Worth
• Decisions, Decisions – Making a Big Purchase
• Is Saving Really About Motivation?
• Ways We Spend Money Without Evening Knowing It (and How to Fix It)
• Barriers That Prevent us From Saving Money
• Dealing with the Stress of Financial Issues
• Getting Your Finances Ready for a New Job
• Are You Hurting Your Own Finances?
• Creating Financial Goals You’ll Actually Accomplish

Photo Credit: quaziefoto

Good Morning Everyone and Happy Halloween.  Today we are starting a new series called “Me, My College Education, and My Money” This new series will discuss everything about our College Education from the cost of tuition and books to the job possibilities within our program after graduation.  Our resource for most of this information is thanks to The Globe and Mail.

Graduate from College Debt Free (Or Close To It)

I am proud to say that I graduated from College with a 4 year Bachelor’s Degree; unfortunately I did not graduate from college debt free.  I moved away from home to attend college in a city 7.5 hours away from my family; from my own personal experience I feel that it is almost impossible to graduate from college debt free if we don’t live at home while studying.

If we start saving early in our teenage years we could graduate from college debt free.  If we starting working part time while we are in high school we could start saving money for college which will help with the cost of tuition, books, and living away from home while attending college.  Unfortunately, many young students prefer to live in the moment and spend their money, rather than save it.

Graduating from College Debt Free is a great goal, but it may not be a reality for everyone.  But don’t worry because Green Panda is here to help!  Students can take little steps throughout our college years to help us graduate from college debt free, or at least close to it.

How To Save Money in College

Here are 10 Great Tips to Help Us Save Money in College:

1. Start Saving Early.  Saving money doesn’t only mean that we have to put money aside from our part time jobs.  It also means that we have to cut down on our monthly bills and expenses.  If we spend less money, then we can save more money.

2. Consider Alternatives.  A 4 year College Degree may not always be a financial option for everyone.  We may consider less expensive education options such as Community College or Trade School.  If you are planning to go away to College consider spending your first year or two at a school closer to home and then transfer after you have money saved up.

3. Plan Your Education.  It will be helpful to research the cost of living in the city where you want to attend college.  If you know how much it costs for rent, your monthly bus/subway pass, as well as the cost of your tuition and books then you can better plan your budget and know how much you need to save.

4. Maximize Awards.  Check your College Student Center for local bursaries and scholarships that are available to first year, second year, third and fourth year students.  Some bursaries and scholarships are also available for students in specific programs.

5. Create a Reasonable Budget.  This is where Planning Our Education comes in handy.  If we know the costs of our expenses then we can plan our budget.  If we live on a fixed income then we should also live on a fixed budget.  The key to a good budget is to make a little room for everything, if we sacrifice too much then we will never stick to it.

6. Save on Text Books.  Try to buy Text Books used.  Sometimes 3^rd and 4^th year students will sell their books to 1^st and 2^nd year students at a discounted price.

7. Work Part Time.  I liked working part time in College.  It was a nice break from school and it gave me some extra money.  I made some great friends at my part time jobs.

8. Quit Your Car.  Cars are a huge expense.  It is definitely cheaper to take public transportation. Most College Students live near campus anyways; your car is just a luxury and unnecessary expense.

9. Learn About Cash Flow. If you spend less than you earn you will always have money and keep out of debt.

10. Be a Stingy Gourmet.  My biggest regret before moving away to College was not learning how to cook. Eating out is expensive. Trust Me…You Want to Learn to Cook.

Photo by SpindilerHades

Good Morning Green Panda Friends.  If your personal finances are less than perfect then we are here to help you with some easy steps to organize your finances.  Very often we discuss the goals we are working towards and the steps we need to take to achieve our goals.  However, we seldom discuss what to do if our finances are already less than perfect.

US News released an article titled 10 New Money Tools for Young Adults.  It discusses free ways for us to create and track our budgets, set and follow our goals, as well as responsibly manage and pay off our debts.

Check out these Free Money Tools for Young Adults:

Go to Mint.com. They are listed as the number one Free Money Tool for Young Adults by US News.  I have to agree 100%.  I personally use Mint to track my monthly spending, follow progress on my personal goals, and manage my debt.  You can instantly download all of your bank account, loan, and credit card information into Mint.  It is very easy to set a budget as well as personal goals such as retirement planning, paying off debt, and saving for a major purchase.  Mint is available for both young Americans as well as Canadians.  If you have not yet tried Mint, I suggest that you sign up today…it’s totally free!

Read Personal Finance Blogs. Most personal finance blogs offer free budget spreadsheets for their readers.  Next time you are reading posts on your favourite personal finance blog check out the free budget spreadsheets and other financial planning tools they offer.  Personal Financial Bloggers usually recommend their favourite financial tools, as well as tools that have helped them in the past.  To view Personal Budget Spreadsheets recommended by Green Panda click here.

Visit Your Financial Institution. Not in person, but visit their website.  Many Financial Institutions offer free financial tools right on their website, consider it as virtual financial planning advice.  Next time you log into your online banking with your financial institution check out their free financial planning tools and calculators.

Register for Online Receipt Organizers. If you are like me then you never carry cash, however we are probably the minority of consumers.  For everyone who doesn’t like to use their credit or debit card for their every purchase, Myreceipts.com offers a free way to manage your paper receipts.

Avoid Impulse Purchases. US News suggests using online wish lists.  We can add items that we want to our personal online wish list, if we still want the time or need the item next time we log in to the website then we can buy the item.  I always leave a week delay for my purchases to avoid impulse spending.  If I see something in a store that I want on Monday I walk by again on Friday, if I still want it or need it five days later then I buy it.  This strategy usually works because five days is a long time to talk myself out of something.

Other Free Money Tools for Young Adults Include:

-       Bundle.com

-       Payoff.com

-       Billlshrink.com

-       YouNeedaBudget.com

Photo by Robert Couse-Baker

Our first credit card can set the tone for our financial future. If we effectively manage our credit card debt we can build a good credit history.  However, if we are financially irresponsible with our credit card debt it can definitely harm our financial future.  Good credit card management is very basic, we need to choose the best credit card for our needs and make sure to always make at least the minimum monthly payment on time.  Everything else is just makes sure that we are getting the most out of our credit card.

If you are unsure of what type of credit card will be best for your needs, I suggest that you use a credit card calculator.  After answering a few simple questions about your personal situation, the intended use of the credit card, and our willingness to pay annual fees, a credit card calculator will suggest the best credit card for our needs. 

Most financial institutions offer a credit card calculator.  Here are some credit card calculators from Bank of America and Chase.  Other Financial Institutions such as USAA and TD Bank allow us to view and compare all credit cards on the same page.  This allows us to see the features and benefits of all credit cards at the same time.

The key to credit card management is to make sure that we use our credit cards effectively so that we benefit the most from our credit card features.  I personally don’t like to have an annual fee on my credit cards, and in exchange I accept to earn 1 rewards point for every $2 spent, instead of 1 point for every $1 spent with the credit card with an annual fee.  I also don’t want to pay an extra annual fee to have a lower interest rate, but that’s just me.  Make sure to inquire on all insurance features and extended warranty benefits. 

Paying off our credit card debt is a crucial part of effective credit card management.  I personally like to have a Pre Authorized Debt set up to pay off my credit card balance in full every month with an automatic transfer from my checking account to my credit card.  Paying off the full balance of our credit card debt every month ensures that we only spend what we can afford, and we don’t overspend. It also makes sure that we don’t carry a balance on our credit card and therefore we are not charged any interest.

Every month I spend on my credit card only what I can afford to pay off. I use my credit card for everyday purchases such as groceries and personal shopping at the pharmacy.  I don’t use my credit card as a personal loan to buy items that I can’t afford. I only make big purchases on my credit card to take advantage of the added benefits such as insurance and extended warranties.

Credit card settlement can be helpful if we find ourselves in a situation where we are unable to effectively manage our credit card debt.  If we become overwhelmed with credit card debt and we are unable to make our monthly payments then credit card settlement may be the right option for us.

Credit card settlement allows us to negotiate our current debts to a lower interest rate. In some cases credit card settlement even allows creditors to forgive a portion of our credit card debt.  Credit card settlement is offered by debt management councillors who negotiate our current credit card debts and interest rates on our behalf with our creditors.  Credit card settlement allows us to make one monthly payment to the debt management councillors who will in turn pay off all of our creditors on our behalf, after taking their fee.

Having a credit card can be a big financial responsibility.  However, if we effectively manage our credit card debt it can create a happy financial future.

It’s easy to pass the buck so to speak. We have become used to passing on blame to others for our problems. It’s easy to blame weight gain on the fact that there’s so many fast food joints around. It’s easy to blame poor financial habits on the abundance of  spending options available to us. Today we will not be playing the blame game. It’s now time that you take full accountability for your finances by understanding why you are broke:

Reason #1: You have no income.

Either you have no income or you simply don’t make enough money. This is usually the main reason most young people are broke. The obvious reason is that most college students claim to not have enough time to work. The quick solution to this is to start your own side business in college. If you don’t have the entrepreneurial spirit, you can always apply for a part-time job around campus. You won’t make a fortune, but at least you’ll have money coming in to prevent you from going broke. If all else fails you can check out online jobs for college students.

Reason #2: You spend more than you earn.

There’s just so much stuff out there that we want to buy. Every time I walk into a clothing store I feel like losing my mind because I fall in love with everything I see. Spending more than you earn can spell a financial disaster for you. At first it may only feel like you have a few dollars on your credit card. As you begin to spend more than you earn that few dollars can end up being a few thousand dollars. Add a few years to the mix and you’re in massive debt because you chose to spend more than you earn. I’m not here to preach to you guys. I just hope that this serves as a wake up call if you find yourself in this situation.

Reason #3: You follow every single trend.

Following trends can kill your finances. I would love to buy the new iPhone 4 but I know that it’s not in my budget at the moment. Many people go into credit card debt early in their working lives because it seems like so much fun to follow the newest trends when it comes to technology, clothing, and even eating habits. The trick is to practice delaying your purchases. I will get the newest iPhone. Just not right away. I will buy it when I have enough money in my checking account to cover this purchase.

Reason #4: You think personal finance is a waste of time.

Many young people simply can’t be bothered to worry about their finances. Some will argue that they will earn lots of money after college, so they can rack up debt now and pay it off later. Others simply don’t care. I’ve had buddies scoff at me for writing about personal finance. What’s their strategy? To make lots of money and not have to worry about managing it. I hate to break it to you but that’s not how it works in the real world when you have expenses to pay for.

If you don’t at least attempt to think about your finances, you’ll never get ahead and you’ll only find yourself broke. You don’t need to track every penny or live like a miser. You just need to understand where your money goes and why it goes there. That’s all.

This list could go on, but I feel that if you take care of the four reasons above, then you’ll be on the right track to managing your finances well now and into the future. Don’t worry next weeks topic will be much more fun. Just needed to cover this important concept guys.

(photo credit: nesster)