The Debt Destroyer | The System

by Staff Writer on June 20, 2012

The Debt Destroyer is the financial management system that I use to Destroy my debt.  It’s an easy to manage, simple, and doesn’t require you to count every penny in your budget.  It offers enough rigidity for the Free Spirit in the family and enough wiggle room for the Nerd.

I’ve been using it for over a year now and LOVE it.  The total time required to manage the whole system is 30 minutes per month.  The system can be accessed from anywhere there is an internet connection; home, work, even your smart phone.  There is automation in the system, but you are still in complete control of how your money flows into and out of your accounts.

Over the next few weeks we’ll explore each part of the system in depth.  The first steps are always the most difficult.  They require you to step out of your normal everyday activities and apply new ones to get your finances under control.  The first  steps will require a bit more effort to achieve, but setting the foundation will make the system maintenance a snap.

Let’s get going ->

Financial Reality Check

It’s pointless to try digging your way out of debt if  you don’t know how deep the hole is.  We’ll gather all your financial data and figure out what your current debt load is (if any, you lucky son of a gun).  We’ll also figure out your net worth so you know exactly where you stand financially.  Understanding your financial position in relation to ground level (debt freedom) gives you a target to aim at.  I was 101,000 feet ($) below the surface, within a year I’ve been able to climb 40,000 feet ($)towards the surface.  Let me tell you, the air (your stress level) gets much better the higher you climb.

Capture Your Daily Expenses

Change doesn’t just happen.  It takes a focused effort, and a strong desire to make it happen.  Understanding how you currently are spending money will highlight the areas you can improve upon to help the bottom line.  If you are spending $5 a day for lunch, you’ll soon realize that equates to over a $100 per month, just for lunch.  You can use this data to make the required changes to your behavior.  If you brown bag it you can usually spend $2 per day, saving you over $60 per month.  Use that $60 to increase your debt snowball.  If you don’t know, a debt snowball is a pile of money that you apply to a debt.  Once that debt is paid off, you take the pile of money and add the payment from the debt you just paid off.  The new pile of money is even larger and is applied to your next debt.  You repeat the process until you all your debts are paid off.

Category Development

When setting up a budget many people get hung up on having a category for everything.  They’ll have one for house insurance, one for car insurance, and one for life insurance.  They will have categories fortheir1st mortgage, 2nd mortgage, home loan, taxes, and so one.   I’m here to show you the how to keep it simple and minimize the amount of categories you have.  The categories are not the important part of the budget, how you allocate the money is.  Simple, meaningful categories are all you need.  Since personal finance is personal, my categories will not be the same as yours, so we’ll use mine as a rough guide for yours.

Sinking fund set-up

Sinking funds are the rocket boosters that make the Debt Destroyer simple, fast, and easy.  Just think of a sinking fund as a place holder for your money.  An electronic envelope if you will.  Money gets allocated to the fund through a deposit, and bills are paid through with the fund.  All records are retained in one location, any cash flow questions can be quickly answered by reviewing each fund (account).

Cash envelopes

Cash envelopes are extremely easy to use, and make purchasing items simple.  I use cash envelopes for groceries, fun money (blow), Sam’s Club, house hold items, and misc personal items.  The envelopes are filled twice per month and once the money is gone, it’s gone until the next pay period.  There is something empowering and limiting about using cash.  I enjoy the strange looks I get at the grocery store when I pull out my envelope.  It may be dorky, but this dork is  on his way to becoming debt free.

ING Account set-up (electronic envelopes)

Even though cash envelopes are cool, they become much less ideal when it comes time to pay bills.  ING is the online bank that I have all of my accounts through.  The accounts can quickly be accessed from just about anywhere, I truly love this product.  I’ll go into detail on how I have it set up and some of cool ways you can use the electronic envelopes.

Budgeting worksheet

This is where the magic happens.  No, not that magic.  The magic of Debt Destroying.  This is where you plan out how you are going to allocate (spend) your money.  If you have done everything correctly, there will be extra money leftover to apply toward your debt.  If you don’t have money left, you’ll need to use this sheet and the knowledge  gained from the other steps in the program to make the sacrifices needed.

Debt Snowball

We’ll build your debt snowball in this section.  There are many different ways to approach a debt snowball and we’ll review many of them here.  The debt snowball, the debt avalanche, the debt snowflake, highest to lowest interest rate, emotional debt ballin’, and a few others.  The point is to have a plan and work the plan.

ING Account usage (how it all works together)

Now that the system is set up, you need to know how to work it and maintain it.  This is where the 30 minutes per month begins.  All the hard stuff is out of the way and you can now focus on living your plan.

Extra income (i.e. get a second job)

Besides winning the lottery or receiving a large sum of money, the quickest way to eliminate debt is to earn more money while you are controlling your spending through a written (typed) budget.  We’ll look at some great ways to earn extra income.  If you’d like to see how I feel about a 2nd job take a look at this post Get a Second Job and Quit Whining About Debt.

If you already have a debt busting system, GREAT.  You will still want to check out this series to pick up some more tidbits.  If you are looking for a system, look no further.  This system has me on the right track and will help you get debt destroying too.

I wish you all the best,

Jeff