Posts Tagged ‘New Year goal’

New Year Debt Resolution Step 9: Track Your Progress

Friday, January 9th, 2009

This is the last of nine basic steps for setting a New Year Resolution to pay off debt.

In our series of posts on setting a New Year Resolution to reduce debt, we’ve covered basic steps you can take to get out of debt.  We’ve discussed how you can set goals, come up with a plan, and enlist the support of others in paying off debt.  But the most important step of all is to track your progress over time.

Only by staying on top of your situation over time can you hope to achieve your goal.  We have seen that without monitoring, the tendency is to overestimate progress or, even worse, move backward in your goal.

What’s the best way to monitor?  Simply utilize the debt reduction tracking system we discussed in an earlier post to track your progress.

  1. Set up a spreadsheet or paper tracking system with a column for the following fields:  balance, APR, payment date, minimum payment, amount paid, and expiration date of any intro APRs.  Make sure you sum each column at the bottom to get total amount.  Create a separate sheet for each month going forward.  As a simple matter, you’ll have to pick whether to bucket accounts by month or payment due date.  I recommend that you track the accounts by the month in which the payment due date falls, as that’s more closely correlated to cash flow.
  2. Create a summary sheet with space for your total debt and total credit card spending at the end of each month.  If you’re visual, create a graph.  If you don’t use excel, just use a ruler and create a manual one.

Track your total debt each month to monitor how you’re doing.  If you set up a SMART goal to for debt reduction , track your progress against that as well.

As you track your progress, you’ll find that things start to fall into place.  You’ll have the visibility to your financial habits and the feedback to adjust your behaviors to have greater success.

In closing, remember that 65% of people who profess to have a goal to reduce debt never put a plan into place.  Just by creating a plan to deal with your debt and starting to track your success, you’ll be significantly more likely to achieve lasting results on your goal.

Hope you’re having a great new year.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Sharing Your New Year Resolution With Others Will Increase Success

Wednesday, January 7th, 2009

This is the seventh of nine basic steps for setting effective New Year’s goals to get out of debt.  You can share your debt resolution with others here.

In this series of posts, we’ve been covering the basic steps that you can take to get out of debt.  Most of these have been discrete actions taken because they have direct bearing on your finances.  Step 7 is different.

Regular readers of our blog know that we like to talk about the psychology of debt, and how that’s often used against us by lenders.

Here’s a psychological trick that you can use to your benefit:  tell friends about your goal.  Why?  Studies show that if you tell other people about your goal, you’re more likely to stick to it and have success.  Consider it positive peer pressure.

  • A 1973 study by Pallak, Cook, and Sullivan asked people to minimize energy use.  Those who made a public commitment to do so and have their names published in the newspaper reduced their energy consumption by 10-20%.  Those who made a private commitment or no commitment did not reduce their consumption at all.
  • A 2007 study by Richard Wiseman of over 3,000 people attempting to achieve new year’s resolutions found that for men, goal setting improved success by 22% and for women, 10% were more likely to be successful when they had the encouragement of others.

We love the second study.  When you tell other people, your chance of success goes up by 10%.  That’s a pretty good impact.

So this year, tell your friends about your goal and ask them to check in with you periodically to see how you’re doing with your goal.

Tune in for tomorrow’s post when we’ll discuss how your family and friends can help you be more successful.

See you then.

Hope you’re having a great new year.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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New Year Debt Resolution Step 6: Simplify For Success

Tuesday, January 6th, 2009

This is the sixth of nine basic steps for setting effective New Year’s goals to get out of debt. You can share your debt resolution with others here.

In this series of posts, we’ve been covering the basic steps that you can take to get out of debt.  In doing so, we’ve focused on core principles rather than gimmicks.  One of the simple truths of finances is that in order to make progress against any type of goal, you need to be able to understand where you are at any point in time and what direction you’re heading.  Unless you have a simple financial structure and a mechanism for tracking your direction, it’s very difficult to manage.

A few months ago, I wrote about a friend who had put a goal to get out of debt but then found a year later that her financial condition had worsened considerably.  The real take-away from her story is that she had such a complicated financial picture that she and her husband were never able to grasp their situation.  They had 16 credit cards with over $100K in credit card debt, over 25 total debt accounts, and 2 checking accounts that they spent from (one for each spouse).  They tried to manage their debt load by constantly balance transferring from one card to another.  Against this backdrop, it wasn’t too surprising that their condition didn’t improve.

Psychologists have repeatedly asserted that the human mind has limited ability to manage more than 5-6 things at a time.  For most of us, it’s simply too difficult to mentally track many different accounts with different due dates.

So how can you create a system for success?  Consider the following steps:

  • In the second step, we outlined a system you can use for getting organized.  Create a simple paper form or a spreadsheet where you write down your statement balance each month and add them up at the end.  Compare to previous months to see your trajectory.
  • Commit to not spending on your credit cards and then do the same tracking exercise with your card spending.  Write down your total purchases for each month from each statement to make sure that you’re not slipping.
  • Create a financial structure that will lead to success.
    • Consolidate your inbound cash flows into a single account.  Use this primary checking account for all day-to-day spending.  This will automatically control your spending as long as you’re not charging on your credit accounts.  As an added bonus, if you do it through a bank like Wells Fargo, you can then see the categorization of all your discretionary spending.
    • If you are trying to pay down debt, set up separate bank account for debt payments that you fund directly from your paycheck.  This will ensure that you have enough in your account to make all payments on time and maintain a constant amount to paying off debt.
    • Reduce the number of credit accounts.  Use balance transfer offers to reduce the number of accounts.

At DebtGoal.com, we believe that seeing the right information about your finances is over half the battle.  If you can see it you can manage it, but it’s very difficult to manage something you can’t see.  Just seeing your information in an organized way allows you to take action in a way that you can’t when you don’t accurately track the information.   You’ll find that your finances will tend to fall in line as you track your monthly situation.

There are many ways you can create an effective financial structure.  We’ve given you our thoughts, but the important thing is that you find a system that works for you.  But in this, as in most things, less is more.

Tune in for tomorrow’s post when we’ll discuss how your family and friends can help you be more successful.

See you then.

Hope you’re having a great new year.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Posted in Credit Card, Debt Management, DebtGoal, Emergency Savings, Lending Industy, Paying Down Debt, Saving, Spending, Uncategorized, mortgage | View Comments

New Year’s Debt Resolution Step 5: Create Your Plan

Tuesday, January 6th, 2009

This is the fifth of nine basic steps for setting effective New Year’s goals to get out of debt. You can share your debt resolution with others here.

Of all the posts in this series, this is the one I’ve been dreading as it’s not so easy to compress what could fill books into a single post.  But I’ll give this a go, counting on readers to forgive me for omissions.

Did you know that 65% of people who claim to have a goal to get out of debt never create a plan?  How many of these do you think are successful?  I don’t have any stats on this, but you can imagine that the success rate is pretty low.  Without a detailed action plan, there’s simply nothing there. Don’t be part of the 65%.

Yesterday, we talked about how to set SMART goals for getting out of debt.  Creating a plan for getting out of debt is simply the process of creating a series of SMART goals around all aspects of your debt.  An effective plan will utilize SMART, be efficient in reducing your debt, leverage all means to determine success, and still permit fun.

So here we go with a series of steps that, when put together, constitute an effective plan for getting out of debt.  Each of the steps described below is actually a series of actions that we will leave for you to apply as you see fit.

  1. Quit spending on credit cards.  We covered this in an earlier post [hyperlink], but it’s worth repeating:  you can’t get out of debt while continuing to spend on your credit cards.
  2. Create a plan for paying off your current accounts.  For this, use a basic snowball approach:
    1. Set a monthly payment amount.  Determine how much you can apply to your debt each month.  Start with the combined total of your current minimum payments and add any additional amounts that you feel you can afford.  Commit to holding this amount constant and paying this total amount to your debt each month.
    2. Allocate payments to your Target Account.  Each month, make the minimum payments on all accounts except for your highest-interest account.  Make this your Target Account, and apply any excess funds each month to your Target Account.  As you gradually pay down your credit cards, you will free up extra cash that you can use to apply to your Target Account.  Use your system for tracking your payments each month to determine what this amount will be, as it will increase each month.
    3. Move to the next account.  After you pay off your first account, don’t decrease your monthly payment-continue with your constant monthly amount and allocate all excels funds to the next highest-interest card, you new Target Account.
    4. Don’t fall into the minimum payment trap.  Credit card minimum payments will decline over time as you pay off your balance.  If you pay only the minimums, it can take 14-20 years to pay off a card.  If you hold your balance constant on an individual card, it can take as little as 2.5 years.  If you utilize a snowball method on several cards, it can take less.
    5. Create a tracking system.  Create a simple approach to track your progress.  This should let you monitor individual account balances, new purchases, APR, minimum payment, and actual payments.  Monitor your purchase to maintain control on your spending and track your total actual payments to compare to your commitment.
  3. Utilize assets wisely.  If you can, consider selling little-used household items to raise cash to apply to debt.  If you have excess savings, apply this to your highest-interest account.  Although it may make sense to tap additional assets with a 401(k) loan or a home equity loan, this should only be done if you are secure in your job and there is little chance of needing to declare bankruptcy.
  4. Lower interest costs.  Renegotiate your rates with credit card issuers by calling and threatening to close your account-50% of the time they will agree to lower your rate.  Utilize balance transfers and introductory rates or refinance your mortgage if you can.  If you do lower your rates, be sure to maintain the amount of your monthly payment commitment.  Use the extra money to get out of debt more quickly.
  5. Cut expenses.  Examine monthly expenses to see if anything can be reduced.  Maybe you can do with a cheaper cable package or without a cell phone.  If you can free up expenses, increase the amount of your monthly payment by the amount you’ve saved so that you make as much progress as possible on your debt.

There are many ways you can create an effective plan to tackle your debt.  However you decide to do it, identify a few actions in each area that you can take and set definable goals.  Set interim goals for paying off individual accounts.  Above all, set a monthly payment that you can commit to each month and track your payments and your progress.  Half the battle is just tracking your results-your behavior often follows.

As you start on this process, you’ll notice that it’s hard at first.  In the next post, we’ll discuss how your family and friends can help you be more successful.

See you then.

Hope you’re having a great new year.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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New Year’s Debt Resolution Step 4: Get SMART. Set Effective Goals To Get Out Of Debt

Saturday, January 3rd, 2009

This is the fourth of nine basic steps for setting effective New Year’s goals to get out of debt. You can share your debt resolution with others here.

A 2007 study by Richard Wiseman of over 3,000 people attempting to achieve new year’s resolutions found that for men, goal setting improved success by 22% and for women, 10% were more likely to be successful when they had the encouragement of others. In this step, we’ll discuss a framework for setting effective goals.

Step 4: Setting SMART Goals

I don’t mean to insult your intelligence, but most of us don’t think about goals in a SMART way. We simply throw down an objective such as losing weight, learning a new hobby, or running a marathon without a lot of thought to making the goal specific enough that it has meaning. In this post, we’ll cover the elements of effective goal setting and how these principles apply to getting out of debt.

SMART Goal Setting 101:

What is a SMART goal? Does this imply that other goals are stupid? Not really. It just refers to a process that ensures that your goal is specific enough to work well for you. SMART is an acronym for Specific, Measurable, Attainable, Relevant, and Timely.

Specific

Good goals are clearly stated, laying out both the outcome and the actions to be taken towards achieving the goal. If a goal seems too complicated, it should be broken into sub-goals that can be clearly stated.

Measurable

To make progress on your goal, you must be able to measure your progress. A good goal has an outcome and milestones that can be unambiguously measured.

Attainable

Good goals have an attainable outcome, inspiring a sense of commitment as opposed to overly-optimistic goals that feel out of reach. The best way to set attainable goals is either to start with a first goal that can easily be reached, thereafter moving towards more challenging targets that do not sap your motivation, or to start right off with a moderate goal that entails pushing yourself beyond your comfort zone – but only slightly. Once these initial milestones are achieved your confidence will rise and then your chance of successfully tackling more challenging goals will be higher.

Relevant

The goal should be meaningful and significant in your life and your broader life goals

Time-Bound

Good goals are time-bound-they have a specific target completion date that is neither too long nor too short. Set a realistic timeframe that will inspire confidence, but still give you a sense of accomplishment when reached.

How can you apply the SMART framework to your debt? Start by understanding your debt situation and the means at your disposal to attain it. Based on the previous steps, you should have a good sense for this at this point.

You can set a SMART goal for debt any way you choose, but here’s a goal that works for many:

Pay off my highest-interest credit card by MM/YY without increasing debt on other accounts.

This goal meets the SMART criteria:

  • Specific (has a defined outcome)
  • Measurable (you can clearly measure the result)
  • Attainable (paying off one credit card is a simple goal that should be attainable)
  • Relevant (paying off one credit card is a significant step toward getting totally debt-free)
  • Timely (has a defined completion date)

Again, you can set many goals around debt, but this goal is a simple, definable, and attainable goal that will give you a sense of accomplishment when you’ve reached it. It’s the first step in creating a plan to truly get out of debt. Tomorrow, we’ll show you how to build on these simple goals to create a long-term plan for getting out of debt that also follows the SMART framework.

See you then.

Hope you’re having a great new year.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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