No matter how much of a handle we feel like we have on our debt, we can all use some improvement. The best place to start is to organize your bills, which will allow you to get out of debt quick.
For me, finally getting my bills and debts organized made all the difference. Being organized allowed me to pay off those looming bills so much quicker.
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I’ve talked about the cost of disorganization in your home, so we know organization is important. But it really becomes important organize your bills if you want to finally conquer your debt. Disorganization costs us a lot of money that could and should be going toward paying off that debt.
Not only does disorganization mean it takes you longer to pay off your debt it actually increases your debt. When our bills are disorganized we a very likely to miss payment due dates. The results of missed due dates are late fees and additional interest charges due to higher balances. Even our credit score is affected.
So as you can see it’s super important to get your bills organized. At the same time, I’m all about simplicity. After all, it is mentally taxing to track different accounts, due dates, and other payment information. Let’s face it, we have more than enough already taking up our mental strength so let’s get our bills organized and simplify.
1. Make a List
The first step towards finally getting your bills and debt organized is to gather all of your most recent statements. Take the statements and order them based on the payment plan you will use to pay down your debt. (We’ll discuss that in more detail below).
Once you have all your bills in order you are going to want to write them all down on one sheet.
The easiest way to do this is to create a simple spreadsheet. You can use any word processing document or print out one of the numerous spreadsheets available online.
Or here is the simple sheet that I use, just click here to download. Honestly, it’s just as easy to create your own Microsoft Excel or Google Doc’s spreadsheet. The important things to include in the spreadsheet would be the name of the creditor, your current balance, the annual percentage rate, your payment due date, the minimum payment due, the amount you paid and your new balance.
Now that you have all of your bills listed out the next thing you’re going to want to do is prioritize. Look at all of the current debt and determine which bills are most important to get paid first.
The point here is to focus on one debt until it is fully paid. This is the same principal you would use in decluttering or organizing your home. Ideally, you focus on one room at a time until it is done.
There are different ways you can prioritize. It is what is going to work best for you. There is no wrong or right way. Really it comes down to how your mind works and what will motivate you to keep going.
The two main ways to prioritize your debt pay off are:
This is what I use. I take the bill with the lowest balance and focus on paying that one bill off. I do this because it gives me a small win. This also creates a Snowball Effect when you pay off your bills starting with the lowest balance.
If you choose this method, start with paying the most that you can each month towards that bill until it is paid. You will continue to make the minimum payments due on all other debt.
Once you have paid off the lowest balance bill, take the money you were paying on that bill and apply it to the minimum payment you were making on the next lowest bill.
This will create a Snowball Effect allowing you to pay off your bills at a pretty rapid rate when you are consistent.
The Highest Interest Rate
The next alternative for prioritizing your bills is to focus on the debt which carries the highest interest rate.
By focusing on the debt with the highest interest rate, you save money in the amount of interest that you are paying each month.
Again, there is no right or wrong here. It is what works best for you. Personally, I’m the kind of person that is motivated by little wins. If the debt with the highest interest rate also happens to have a higher balance, it’s going to take me much longer to get that debt paid off. It is going to be harder for me to stay motivated and be diligent about sticking to my plan.
On the other hand, when I pay off the smallest bills first, I’m seeing progress quickly and that helps motivate me. So the bottom line is that you need to figure out which one is going to work best for you and then prioritize your bills accordingly.
The key here is to be consistent with whatever plan you decide to go with.
3. Make a Payment Plan
Now that you have your bills listed out and prioritize it’s time to start making a payment plan. The most important thing with a payment plan is consistency.
Again getting out of debt is no different than decluttering and organizing our homes. It is all about consistency, making a plan and sticking to that plan.
We’ve already discussed that your plan should either be based on paying off the lowest balance debt or the debt carrying the highest interest rate. Pick whichever one you think will be best for you.
Next, determine how often you will sit down and pay your bills. Will you pay your bills, weekly, bi-weekly, or on payday?
Again there’s no right or wrong answer, it’s what works best for you. I get paid twice a month, so for me, it was easier to pay bills each payday. This means that I sit down and pay out bills twice a month.
I have all bills divided out so that I know which bills are due with the first paycheck and then the other half of the bills due with the second paycheck.
4. Keep a Running Total
When you sit down and actually pay bills, make sure to adjust your balance owned to reflect that payment. This is where the spreadsheet is important. When paying your bills open your spreadsheet document or take out your printed sheets and jot down the new balance.
As you watch your balance drop lower and lower, this will help keep you motivated and you will know exactly what your running balance is.
5. List All Payment Due Dates In Your Planner
Trust me here, if you ever struggle with late payments, this is the best way to make sure things are paid on time. Write down the due date for each bill payment in your planner.
By having your due dates in your planner you will get those bills paid on time each month. Paying on time means avoiding unnecessary late fees and interest costs.
Not only does having the due dates listed in your planner help you pay on time, it also helps you plan out your fun activities. When you can easily see which bills are due when you know how much extra funds you have for planning those fun family outings.
6. Create a Filing System
To keep your bills organized it is a good idea to create a workable filing system. You can set up separate files for each debt or creditor. However, for me, I am all about simplicity. I have found that a simple accordion file that is separated by month to work best. The accordion file makes it easy to take the bills for each month and file them in the corresponding month section. This way I have all of my bills in one place.
When I need to look for something it is easy to find because everything is in one place separated by months. Also, it is easy to stay on top of the filing. After paying the bills, I just grab the accordion folder and place all of the bills in that month’s file slot.
At the end of the year, when it’s time to do taxes everything is there and ready to go. I don’t have to look through several files, they’re all together based upon the month.
7. Make a Plan For The Extra Money
Once you start paying down your debt you’re going to have extra money. The question is what are you going to do with that extra money? I think it’s really important to make a plan ahead of time for that extra money.
Without a plan, that money is just going to disappear. You want to be intentional with your money. After all, that’s the whole purpose of trying to get out of debt, to have the things that you’re wanting.
Are you hoping for a great vacation next year? Will you need a new car soon? Think about your needs and priorities and plan something specific for that extra money.
You can use the extra money and apply it to further debt reduction, the stress that you will eliminate in your life by being debt free will be so worth it. So if you’re able to take any extra money and apply it to other debt that is awesome.
Something else to think about is that it is extremely important to have emergency savings. It doesn’t have to be large, but having a minimum of $1,000 set aside will help you stay out of debt.
If an emergency or unexpected expense does come up, without an emergency fund, the first thing we do is run to our credit cards.
The important thing here is to have some plan so that you remain intentional with your finances.
These are some simple and easy ways to organize your bills and your debt. By following these simple tips you will find yourself well on your way to finally getting out from under your debt.