Cash challenge and paying off debt

8 July 2013
I thought it would be fun to do a cash challenge. I want to challenge everyone to use cash for the rest of the month to see if it helps you get a better perspective on your spending. I have no doubt some of you have already done this and some others might not get anything out of it, but overall, it will open a lot of eyes. The challenge is to use only cash, no cards, not even a debit card until 31 July for ALL your spending - that includes groceries, petrol, paying bills (if it's possible) etc. Handing over a $50 note makes you think about what you're spending in a different way than paying the same amount with a card. Cash seems more real and you tend to think more about making the purchase. Let me know if you're joining the challenge and go here if you're a forum member for the discussion at the forum about it. There is an older post here about organising your money in envelopes.

In addition to the challenge, I'd like to talk about paying off debt today. If you have more than one debt - maybe a couple of credit cards, a car loan and a mortgage, or something similar to that, I think using the snowball method will help you pay that debt off. Dave Ramsey is credited with coming up with the snowball method but there is a very good example of it on Wikipedia here.

I know, because I've done it myself, how difficult it is to pay off debt. It goes on for years. I think the trick is to keep looking for different ways to pays it off so you feel like you've got control of it and you're doing something. So all these little bits and pieces take your mind off the length of time it takes and focuses you on all the small ways there are to pay it back.

Don't forget it's always a good thing to start a change jar and collect your change at the end of the day. I have about $100 in my change jar at the moment but one of my sons outdid that. He deposited $500 from his change jar last week. He's been collecting it in a big tin for about six months. The good thing about this way of saving is that you don't really miss it and unless you break into it and spend it, it's a great way of saving a few tidy amounts that can either go into your savings account or to make an debt payment.

Go back to your tracking records too and see what non-essential spending you're willing to give up. That can be added to your debt payments. It's really satisfying to see the amounts you owe go down every month. The banks don't want you to do it, because it means much less interest for them, but you can do this, it will make a real difference to your life, so stick with it.

As you're paying off your credit cards, the bank might write you a lovely letter saying you're such a good customer they're raising your credit limit. RESIST! Write back and thank them, but ask that the limit is reduced instead. That will make a difference too - you'll feel in control of your money. When the cards are paid off, I think it's a good management strategy to keep one card - the one with with smallest interest rate and get rid of the rest. Interest rates and how they're applied vary in each country so it's a good thing to google your local interest rates and see how much they are.  Here is an extra payment calculator which vividly shows how much difference extra payments make. Here are a number of different calculators set to Australian rates. Have a play around with them with different repayments and times and I'm sure you'll be surprised at how much difference some changes can make.

Of course, it is you who has to put in the effort here. I can talk about it till the cows come home but if you're the one with the debt, it is up to you to make that first step towards accelerating your payments. There is only so much time you can sit in front of your computer and think about making a difference  at some point you either have to do it, or decide that you can't and be okay with that.

What have you done with your own loans? If you have some ideas on ways to pay back loans, please share them in the comments section.