Easiest save and pay when you're in debt

Document created by garyr on May 24, 2016Last modified by amara.mastronardi@socialedgeconsulting.com on Dec 5, 2016
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I am in the process of rebuilding credit that 20-something year old me ruined. He was young and foolish and the bad money choices added up to rock bottom credit ratings.


I've come up with my own method for paying down old debt that is working great for me and is very difficult to mess up.


Step 1: Make a realistic budget with all your normal monthly expenses. If any of those expenses are loans or credit cards, then use the minimum required payment for this at first.


Step 2: Figure out how much from each paycheck you'll need to cover those payments plus a cushion of maybe $25-50 depending on if you're paid weekly or bi-weekly. (Basically, you want to have some wiggle room just in case).


Step 3: Set up two checking accounts. To one of them, direct deposit the amount from your paycheck that is needed to cover all normal, current monthly bills. Into the other checking account, put whatever is left.


Step 4: Set all of your normal monthly bills to autopay from the "bills" checking account. The goal is that at the end of every month, the "bills" checking account should have close to zero balance left. You deposit just barely more than you need for normal bills and then they autopay out of that.


Step 5: The second account is filling up with liquid money. If you've struggled with living paycheck to paycheck before, then this will be a wake up call as this is all the money you've been wasting on eating out or shopping. Now instead of those bad choices, refer to a list of your debts and start paying them off. Every month or even every payday, look at how much is in that liquid account, and pay down any debts you can with it. I'm doing mine from smallest balance to largest so the most individual accounts get cleared up the fastest.


This is working great for me, especially recently married and getting used to a joint account. All of our normal and current bill money goes into one joint account and the rest goes to a liquid account. We know that we can never touch the money in joint so we can never accidentally bounce something important.