How to Tackle Your Debt Once and for All

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When talking about debt, many people prefer to just avoid the conversation altogether for fear of shame. The reality is, if you’re in debt, you are part of the majority - as of 2019, 300 million people in the US are in debt, totaling an American Household amount of $13.21 trillion.

Read on to find out the different types of debt, how to create a plan on paying off loans, and why you should start ASAP.

Why should I pay my debt off sooner?

The most obvious reason? Interest. The longer you take to pay off debt, the more your payments are actually going to the interest and not the loan itself. Because of this, your payback amount will be guaranteed to be higher than your initial loan.

Also - the more you payoff initially, the less chance you have of paying off extra interest, and the more you’ll save in the long run. Avoiding paying the minimum balance is a sure way to guarantee you’ll pay off most the principal balance without those extra interest costs. Plus, the sooner it’s paid off, the sooner you won’t have to worry about it any more!

What types of debt are there?

There’s a decent chance you have more than one type of debt to pay - they’re not all created equal, and some are actually considered “good” debt. Here are the different types you may encounter:

  • Mortgage - You have to have a place to live, so this type of debt is almost unavoidable; however, if you invest smartly, you could actually make money in the long-term once you sell.

“If you buy a home for $235,000 and it appreciates 3% a year, it will be worth $485,000 when your 30-year mortgage is paid off. If it appreciates 4% a year, that initial $235,000 investment will be worth $649,000.” - Debt.org

  • Home Equity Loan/Line of Credit - This is a loan with a low interest rate that uses your house as collateral. You receive it as a lump sum and pay back off a certain amount each month, and it can be used to pay off high-interest credit cards. While this is a good way to keep interest rates low, you must be careful not to forget payments, as your house could be foreclosed.

  • School Loan - Depending on what you want to expand your knowledge on, taking out a school loan is great debt - as long as your future career can help pay if off easily. Nevertheless, acquiring a loan for school and paying it off on time is a great way to build your credit score and not feel so guilty about borrowing money, since it’s for the betterment of your future.

  • Small Business Loan - Most small businesses will take out a loan or ask for monetary help when first opening their doors. Much like the school loan, this will only work if your business can actually pay it off, otherwise you’ll end up owing more than what you started with.

  • Credit Card - While credit cards may seem appealing because they’re an immediate fix for financial woes, you end up paying big time in the long run. Some interest rates are as high as almost 20%, which means you’re paying extra on payback versus the amount you used for your initial purchase. While they can help you in a bind, credit cards can kill your credit score if you aren’t careful.

  • Payday Loans - Similar to a credit card, these loans are for getting you out of an immediate jam, but they come at a price.

“It’s quick and easy, but the finance charges range from $15 to $30 for every $100 borrowed. A typical two-week payday loan with $15-per-$100 fee equates to an annual percentage rate of 400%.” - Debt.org

  • Auto Loans - Depending on where you live, having a car may be a necessity. Be careful going into getting a loan for a car, however, because as soon as you drive it off the lot, it’s no longer worth what you paid for. You’ll be paying back a loan that doesn’t equal the value anymore.

Which One Should You Pay Off First

There are many ways you can tackle the order of your debts, from highest-interest to the smallest amount.

Paying off the debt with the highest interest rate makes sense - you don’t want to be paying more money than you have to, so wiping this one out will help combat those ridiculously high interest amounts you’re accruing the longer you leave them unpaid.

Paying off the smallest amount owed also makes sense - because it is smaller, it will get paid off more quickly. This is a great method if you find you lack motivation, because you’ll see substantial progress. Just remember, however, that those high interest loans are just going to get higher the longer they’re unpaid.

Ordering your debt repayment in terms of tax breaks can also factor into your final plan. School loans, for example, which typically have lower interest rates than credit card loans anyway, also come with a deductible on interest when filing taxes.

How to Create a Plan for Debt Repayment

You’ll need to determine:

  1. Which debts are the highest priority based on which method from above you use (highest interest, lowest amount, or order based on tax breaks);

  2. How much you can contribute to debt repayment each month (this will need to be done by creating a budget if you don’t already have one);

  3. If the repayment plan you make can be sustainable in the long run, meaning it won’t put you in the red, or be too little to make a large impact.

    1. You can, however, consider flexibility - perhaps you get a higher-paying job, or a raise, or you move to an area with a lower living cost. Any money that no longer has a job or any extra income can be accrued towards debt repayment. Just be sure to not lower this amount, and again, make sure it’s sustainable in the long run.

Once you have these steps in place, just keep monitoring, and start imagining your life without debt - because now, it will become a reality.

If you need help with debt repayment - whether you aren’t sure where to start, or you just need some encouragement - we can help. Schedule a 60-minute consultation with us today.

No Spend March: Week Four

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We made it! The final week of No Spend March. While I feel that it was a good experiment and challenge to try, I will admit, the idea of forcing myself to not spend money felt like I was, in a way, shackling myself to my work and my home. While I may have a few extra dollars in my bank accounts, I passed up on many opportunities to see friends and socialize because, “I’m doing a no-spend challenge for work.”

Sure, it was entirely my choice to partake, but I definitely felt why it can be difficult to not spend money, especially when everyone around you is.

Let’s go over my final week!

Friday I repeated a mistake I made the first week - I found myself after a photoshoot hungry with no preparation, so I ended up going to Jimmy John’s for lunch. While it may be slightly better for me than McDonald’s (who am I kidding?), it was certainly not better for my wallet. Money spent: $11.11

In case you forgot, this Saturday was my day to allow myself to spend money, because I went to the Comic Convention and Entertainment Expo (also known as C2E2) in Chicago. I bought two Blu-Rays of shows I had been looking for for such a long time, and got Joel and I Taco Bell after our hellishly long day driving in Chicago traffic and walking 20,000 steps. We were not in a mood to cook. Money spent: $156.31

Yes, you read that right. Thankfully, I kept some restraint for the rest of the week, because I know I had to make up for this past weekend.

So, now that this challenge is over, what have I learned?

  1. I figured out times where I am more likely to spend money. My impulses are driven by hunger, always. This is why diets are the worst thing in the world for me (the latter of which I’m trying to attempt in an effort to clean up my eating habits). So, if I know I’m going to have a long morning or day of being on my feet, I need to prepare myself for that.

  2. I now take my time to decide what purchases take priority. Not being able to spend money has given me a lot of time to figure out what I need and want to purchase. I give myself less grief spending on items I need, and find more joy in spending on items I want, because I now give myself more time to reflect before purchasing.

  3. Sometimes, I’ll have to spend money, and that’s O.K. I’ve always made myself feel guilty when making purchases. Have you ever gone shopping with someone who carries an item around the store with her for most of the time, only to put it back right before you leave? Yeah, that’s me. Sure, reflecting is good (as I mentioned in my prior point), but also - I shouldn’t deny myself the simple pleasures of life simply because I feel guilty parting with my money.

Now, I better understand not to spend money frivolously by being prepared ahead of time, think about the purchases I want to make, and then, when the time comes, actually go for it and enjoy the process.

How did your month of no-spending go? Did we inspire you to try a no-spend month? What did you learn over the process? Leave your comments below!

(Also, if you’re nervous about not spending money - did you know Milborn Advisors can help you make a budget? Budgeting is a great way to figure out where your money is going and how not to spend it impulsively. Contact us today for a free consultation!)

No Spend March: Week Three

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This week seriously felt like it dragged. This is probably because I’m going to C2E2 this Saturday (Chicago Comic and Entertainment Expo), and I’m beyond excited. It’s my first time going to a convention this large, and there’s a very strong chance I’ll be in the same room as Paul Rudd at some point - excuse me while I fangirl at the age of almost-30.

But, why do you care about my nerdy pursuits!?

Well, financially speaking - Saturday is also my cheat day! I’m looking forward to spending guilt-free; I tend to hold myself back at conventions and not really buy things for myself, so I’m looking forward to splurging a little bit more this weekend.

With that being said, let’s go over my week.

Friday started off with a bit of spending - I was low on some skincare items, which, while they aren’t technically a necessity, they are something I prefer to have just because good skincare makes me feel better, inside and out. So, we’ll add those items to the spending. Money spent: $60.04

This was also the weekend we celebrated my brother’s birthday, so on Saturday, I got him a super nice jean jacket with an old-school Metallica poster sewn into the back of it (he loves metal and rock music). Money spent: $105.15

While the first two days were rocky spending-wise, the rest of the week went off without a hitch. I got to see some friends and relax on Sunday, and then Monday was back to my usual routine. I’ve actually been enjoying making my own lunches every day and seeing what Joel comes up with for dinner at home - plus, Thursdays are my fish night (he doesn’t like seafood), so I always look forward to salmon, kimchi, and jasmine rice to end my work week. Plus, cooking is - dare I say it- kind of fun?

I’m starting to realize that there are circumstances where spending will be inevitable, because of birthdays, or holidays, or other events happening (no matter how much you may try to DIY-it or try to find another way to not spend money), but I’m also realizing that spending is okay, as long as it’s mindful. Make sure your spending has a purpose, rather than spend just to spend.

Total Spent for the Week: $165.19

No Spend March: Week Two

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For the entire month of March, Amy is taking part in a no-spend challenge! Want to join her and track your progress? Join the Facebook Group!

The first two days of this week went pretty well. My dad texted me asking if we wanted to get dinner with him and my mom, so we went to a place on the East Side called Strange Town. It’s an all-vegan tapas-style restaurant that’s super cozy and reminded me of dining in New York. It was super cool - if you don’t mind foregoing meat for a meal, definitely check it out!

Thankfully, my parents know about my no-spending month, so they picked up the tab - which, I believe they were going to do anyway, but I made sure to thank them profusely.

Sunday, unfortunately, was a bit of a different story. I had two photoshoots back-to-back that day, which meant I didn’t have time to go home for lunch, nor did I have time in the morning to prep my own. So, McDonald’s was my saving grace. Felt gross and terrible about spending money, even if it was a small amount. Money spent: $5.28

Monday comes around, as do my new classes for school. Looking at the syllabus, I realized I had to purchase a textbook. The school store was offering it for $186- I found a PDF version on a different website for under $20.

Also - remember how I was lamenting about having to discontinue Amazon Prime after the two-week trial? Well, turns out they have a fantastic special for students - so now, I get six months free with my school e-mail! Thank you, Jeff Bezos. Money spent: $19.95

The next day, I had my hair appointment that I had scheduled prior to my decision to do a spending freeze. Since it isn’t a necessity, I suppose I should count it, along with the Lyft ride that got me there. Money spent: $98.65 (eek).

The rest of the week went well - no reason to spend money, so I didn’t!

Total Spent This Week: $123.88

Comparing to last week, I did much worse in terms of spending. The only one I truly feel guilty about, however, is the fast food purchase - it was the only thing I didn’t need and didn’t plan out ahead of time, so now I know that if I’m going to be in situations like Sunday, I need to make sure to prepare myself ahead of time.

Is your spending freeze still going strong? What are some purchases you have trouble curbing? Comment below!

No Spend March: Week One

By Amy Lancaster

By Amy Lancaster

For the entire month of March, Amy is taking part in a no-spend challenge! Want to join her and track your progress? Join the Facebook group!

Last week’s post, I announced that I was going to be spending the entire month of March doing, well, the opposite - not spending.

Let’s see how my first week panned out!

(PS - I’m only counting expenses that I would otherwise not normally make - anything outside of transportation, bills, groceries, and other necessities for myself will not be counted.)

I started the month by realizing my cat needed more dry food, and of course, I cannot let her go hungry, so I had to get her her specialty food. It definitely costs more than the average cat food, but she’s going to live until 40, so I have to invest in that. Plus, I count her expenses as necessary, since a cat’s gotta eat, too.

Friday also decided to start with me getting sick, so outside of two hours, I spent the entire weekend in bed. This was definitely good for my wallet and any possible temptation. I also made sure to stay away from any shopping sites online. Joel and I did go check out the new Campsite 131 bar in the Third Ward, and he was kind enough to take care of the tab.

On Sunday, I was still sick. We made our usual grocery run, and Joel was (once again) kind enough to get us Cousin’s and satisfy my sandwich craving (is it weird to crave sandwiches?). Yes, I know I eat out too much - hoping to curb that habit this month as well.

On Tuesday, I woke up to a message from a photography group asking for the fee for the styled shoot I’m participating in on Sunday. I applied to this back in February and forgot that the payment would be made this month.

Thursday I was given an reminder that my free trial of Amazon Prime would expire the next day, so I had to - regretfully - cancel my membership before the charging period started. It pains me to turn it away (for now), but I have to commit to my goal!

Total Money Spent This Week: $10

For the first week, this is absolutely not bad. I’m hoping next week, I can make it $0, and keep it that way for the rest of the month!

How was your first week of No-Spend March? Have you joined our group yet? Click here to join and get support throughout the month!

No Spend March

By Amy Lancaster

By Amy Lancaster

So, this post is a little different from the rest.

As someone who is newer to the personal finance world, and – as someone who likes a challenge – I’ve decided to embark on different monthly challenges to help me improve my finances.

Looking back at my budget last month, I was floored by how terrible of a job I did. I tried to limit myself to $25/week in eating out, and $50/week in shopping (clothing, makeup, fun materialistic items, you know – things I don’t really need), and I absolutely failed. Granted, I had to do some extra spending for upcoming photoshoots as well as indulge in one of my nerdier interests via a local convention – but those acts alone made my budget completely crash and burn for the rest of the month.

Therefore, this month, I am forcing myself to do a spending freeze. Here are my personal rules:

  1. Only spend money on absolute necessities. This includes bills, groceries, transportation, and prior commitments (I have a hair appointment this month, but I feel it’s a bit of a win in terms of saving money because I have been able to work out a deal with my hairstylist to make it less expensive).

  2. Allot for one cheat day. This month, I’m going to Chicago Comic and Entertainment Expo on March 23rd – this will be the one day that I will allow myself to spend money on whatever I want (within reason, of course).

  3. Figure out ways to save more money. There are a few things I could most likely do without that I am paying for every month. This month, I will go through any recurring expenses and see where I can cut some corners.

  4. Share weekly updates. I’ll be posting weekly updates via this blog to share my experience, what went well, and what I can improve on for next week.

  5. Encourage others to join. This is where you come in! Because I have the discipline of my cat the moment a treat enters her field of vision, I will be creating a Facebook group for this that anyone can join! I’ll also be promoting the hashtag #milborntosave on our social media – so, if you want to share anything pertaining to this, make sure to use the hashtag!

Your rules don’t have to be exact to my own – everyone’s circumstances are different, and people have situations where they have to spend money on things besides the necessities. Just make sure to tailor your rules to your situation in the best way that will make sure you come out ahead by the end of the month!

Ready to join the challenge? Join the group and comment below if you’re #milborntosave!