A Penny Saved is a Penny Earned

A Penny Saved is a Penny Earned -
Benjamin Franklin

Wednesday, October 12, 2011

Reducing Debt

 If you’re not motivated to shave off interest payments, sit down and calculate how much money you watched trickle down the interest drain last year.

Mortgage, credit cards, car loan interest can take a huge bite from your income.

I’m a firm believer that you can accomplish anything with a plan. Nine years ago I listed all my debts, worked out a plan and began paying them off. I’m now debt free (including the mortgage and car). You may think I was bringing home a large salary - I wasn't. But I made getting out of debt a priority and cut back on lunches, eating out, and started paying attention to what I bought whether it be clothes or groceries.

Cutting down on unnecessary expenditures will give you extra cash to get these debts paid off. 

There are many programs online to help with organizing and calculating interest. I used an Excel spreadsheet.  

If you don’t have current statements, see if you can access these online and list any debts: Mortgage, car payment, credit cards, personal loans, store accounts.

Here are the most common recommendations to whittle down debt.

Start with credit cards. List the balance of each card with the highest balance first. (Some recommendations are to list them with the highest interest first). Decide how much extra you can pay each month. Even if it’s $50 it will help (that’s two weeks without Starbucks coffee).
Start by paying the additional amount on the card with the lowest balance. For example, monthly payments on Card C will be $20 + $50 = $70 a month until the balance is clear.

Once Card C is paid off, use it only for items that you can pay off each month. If this card gives cash back or rewards and no fees, you’ll be gaining money instead of losing it. If it doesn’t, look for one that will.

Now put the $70 toward Card B until that is paid. You will be paying a total of $150 on Card B each month.

Use the same process for Card A

Once you have paid all your credit cards put the $250 toward another debt.


  1. That's the plan. Theoretically it's a good plan, but life sometimes gets in the way with emergency purchases.

    Many debts are for emergencies not for little stuff. Example: medical bills, veterinarian bills/surgery, large appliance replacement, car repairs, moving, and in some instances paying for mortgages and utilities and/or food especially if not working, or working for a job that pays less then what you used to make). Those can really add up fast.

    I do recommend this debt payoff strategy.


  2. Carla, I actually began the plan after losing my job and taking another one at a lower salary. It's important to keep money in savings for big purchases like a new appliance or car repairs or in the event of a layoff. I stopped eating out (even fast food) cut my grocery bills to the bare minimum and cut down on driving by combining errands/shopping.

  3. Also, I work from home, so that has been one of the best ways to save.



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