I want to start this blog today by saying that I have read a few articles that go over paying off debt in another way. It covers paying off debt by starting with the bill with the highest interest rate instead of the way I suggested by paying the one with the lowest debt first. Let me start by saying that either way is not the wrong way. Its going to be a personal preference. I personally like to make a board or use the fridge and put all the bills that I have paid on that board or fridge when I am done. If I take the bill with lowest debt and pay it off I put it on the board, this helps with visually seeing your progress and it helps keep you motivated. I feel that if you pay the bill with the highest interest first it can take a little longer to see your progress and help keep you motivated.
OK now lets talk about paying your vehicles off, if you follow the budget that I talked about or any other budget that works for you, than you need to think about your vehicle. Your vehicle is a debt kinda like your house, it usually cant be bought by saving money up. Most people take out car loans and pay them over time. Well if you are sticking to a budget and get to your vehicle than there are a few decisions you can make. I personally don't like to pay monthly for my vehicle, these payment can range from $100 to more than $600 a month. Once I started to find out how my friend I mentioned payed off his car and bought another car with cash, I started to get the picture on how to do this. I would start by seeing if you owe more money than your car is worth, this is called being upside down on an asset. After figuring this out if you are upside down then start putting more toward your monthly payment until you can break even. If you are already even or your car is worth more money than you owe then your in a good spot. There is a few options that you can choose. I started to realize that my current vehicle had every option that it could have. I personally don't need any of this. I wanted to downgrade and have no payments but still have a reliable vehicle that was better on gas than my SUV. The other option is to keep up with putting more toward that monthly payment until it is payed off. If you really like your vehicle this might be the best option. If you have ever read the book The Millionaire Next Door, the 2 authors go over how they interviewed millionaires and how they bought vehicles and how much they payed. First lets me start by saying i'm not a millionaire (yet) but the principles are a great way to learn from. They go over that the average millionaire pays between $15,000 and $30,000 for a new or used vehicle. They also pay cash for these vehicles. Most all of these vehicles are just the standard fuel efficient normal vehicles. Why is this? Well people who buy vehicles with cash and don't need to take a loan out, don't care what other people think about them and their financial status. This is a great mindset to get into in every aspect of what you buy. I'm not saying to start shopping at goodwill (i sometimes do) but cutting back on designer cloths and objects can help out a tremendous amount.
The issue most people bring up with not having to pay credit card bills or car payments is how will I keep establishing credit? I have done a little research and this is what I have come up with. The first thing is lets look at what you need credit for. First and most important is to buy a house, maybe for some jobs or background checks. But look at what you use credit for now, getting a new credit card, buying a new car, ETC. I can tell you that when I was in debt, that after I started to pay off all my credit cards that my credit score went up a lot. If you were worried that your credit wasn't good enough to buy that new car then save up for it and buy it with cash. Credit, in my opinion is not needed for anything other than to buy a house. The other way that is popular that i haven't tried, but it sounds and looks good on paper, and would fit people who must keep tabs on their credit score, is to get a credit card with rewards. The theory is that you only buy stuff with this card that you have budged for and have the cash for in your account. When you buy something, you walk out the door get, on your computer or smart phone and pay the bill immediately. Well this will establish constant credit use and you can get rewards from it as well. Like I said I haven't tried this but I would be open to trying it.
Remember to stick to your budget and use the snowball effect to pay off debt quicker. In the next blog I will go over the do's and don'ts on being thrifty.
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