Making a payoff list was a crucial step for our success in finely seeing our debt go down instead of up. I highly recommend it to anyone who is wanting to work towards financial freedom. It is a simple list of every debt we had. It only has those debts which can be paid off however, no reoccurring debts!
We made our list in a word document on our computer so we could easily make changes as needed and always have everything up to date if we needed to make a debt decision.
For our list we started with the name of each debt in the first column, the interest of each debt in the second column, the payoff amount of each debt in the 3rd column and the monthly payment amount in the 4th column. A quick note on the interest column, we chose to list the actual dollar amount of interest each bill was charging us instead of the percentage, even though the dollar amount varied with the amount due it was such a small change for most bills that we only had to update it once every few months or so. We found that seeing the actual dollar amount we were paying for interest really helped us make wise decisions on how to attack our debt.
We put our debt in order from most expensive to least expensive and numbered them. Then we added up all of our debt pay off amounts and beside the date put the total. Every month after the bills had been paid I gathered all the bills and updated the payoffs of each bill, totaled them and wrote a new date and total beneath the old total, we would then put in parentheses beside the new total how much our debt had gone down or up for that month.
A fictional example:
Bill name Interest Payoff Monthly
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(1)Mortgage $568 $100,000 $1,000
(2)Car $134 $23,000 $325
(3)Credit Card 1 $56 $5,000 $90
(4)Credit card 2 $24 $1,000 $40
(5)Interest free Loan 0 $500 $50
-------------------------------------------------------------
Total 8/2/12 $130,223
Total 9/2/12 $129,500 (-$723)
HOW TO USE THE PAYOFF LIST
Using the payoff list you can quickly see how each bill is effecting your finances and make individual choices on that information. I have found that each household needs to take a different attack on there bills depending on what is priority at the time. For instance, considering the chart above we know our smallest bill payoff is only $500 but is costing us $50 a month, however we also know it is interest free and will be paid off in 10 months even if we pay only the minimum. If freeing up that $50 would make a big difference in your monthly budget, help you pay your bills on time or pay off the next bill much quicker then go for it. However if the $50 is not critical, then attack a bill that is charging you interest because your basically throwing away money when you pay interest. It is important to keep the payoff amount, interest and monthly payment in mind when deciding which bill you want to tackle. If you have two debts that are very close in payoff and similar in interest but one has a monthly payment of $150 and the other $75 then it would be to your advantage to pay off the one with the higher monthly payment and free up that money from your debt load. Only attack one debt at a time, you will pay them off quicker and save in interest this way. Eventually you will get a snowball effect and find it easier to pay down debt as more of your money is going to bill principle and not interest. The monthly balance will help you see the effects of your efforts overall and keep you motivated. After you have picked out your first debt to eliminate then just put whatever you can on that debt, even if it’s only an extra $10 or $15 a month, it all makes a difference!
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