A debt reduction calendar is a great idea for people who want to learn self-discipline and self restraint in money matters, and actually get out of debt. It is a simple concept, and one that will give you a dashboard of where you are heading, when you are going to get there, and what it will take.

Using a debt reduction calendar to find out how long it will take to become debt free and how much you'll pay in interest by making the minimum monthly payments, as well as to know what kind of payments you will have to make in order to get out of debt sooner is a great idea. A debt reduction or debt elimination calendar is a smart way to reduce or eliminate debt in terms that are easy to understand.

What a debt reduction calendar is:

A debt reduction calendar is basically a calendar that has the debts you owe, and the months you make payments on it all lined up and clear and easy to see. It usually has the payoff date listed, and the amount of payment required every month. It is a plan for paying off your debts faster, but in a way that means staying within your current budget, without any change needed in income or situation.

How to use a debt reduction calendar:

In order to use a debt reduction calendar you have to have one. It can help you reduce or eliminate unnecessary debts. To make a debt reduction calendar, get a piece of paper, or open an excel worksheet. Then mark off several columns. In the first column on the left you want to write out the names of the months starting with the month following whatever month you are on. Then at the top of the next column write the name of the creditor you want to pay off first. This should probably be the creditor with the highest interest rate, or the creditor with the soonest payoff date. Then, go down the column and list the monthly payment amount until you reach the month it will be paid off. Then, at the top of the next column, do the same thing with the next creditor you want to payoff. Then go down the column and list the payments due each month. After you have repaid the first creditor, add the amount of that monthly payment to the payment for the second creditor. Continue this ladder process until all of your loans are repaid.

The following is an example of a debt reduction calendar for some basic consumer debts:

Old Navy Visa Time Share Orthodontist Car payment
January 100 65 150 75 310
February 100 65 150 75 310
March 100 65 150 75 310
April 100 65 150 75 310
May 165 150 75 310
June 165 150 75 310
July 165 150 75 310
August 315 75 310
September 315 75 310
October 315 75 310
November 390 310
December 700

As you can see, while this is a made up example, if you create a debt reduction calendar, and keep making your payment amount, just to a different consumer debt, you will reduce your debt, or eliminate it much faster. You will not need a raise, or a new source of income to get out of debt faster, you just need discipline.

The key to being successful at this is to not incur more debt during the process, and to make sure you carry the payment amount over. If you continue this process until all of your loans are paid, you will pay significantly less amounts in interest, and you will get out of debt faster. It is a good habit to establish as well.

Things you can do to make your debt reduction calendar more effective:

A debt reduction calendar is a great idea, but it will not work well for you if you do not combine it with other principles of a debt free life. It needs to be used in conjunction with other useful items, such as a budget, a savings plan, good insurance, and more.

To make your calendar more effective, create a realistic budget for yourself. You can use a Word or Excel document to track bills, payment amounts, income, and extra expenditures. On your document, create a chart that lists things like the following:

Date
Bill to be paid
Amount of bill
Total income for period

Under "date," you will want to list your payday dates for the next month. Leave enough space between them to schedule in all your bills. This way you can ensure that your paychecks will meet your needs, and you will not overspend on groceries, gas, or entertainment during a given period. Overspending will mean having to use the money that makes the extra payment on your debt reduction calendar just to make ends meet. That is why a budget is crucial. Without one you will find plenty of reasons not to pay the additional amount that gets you out of debt faster.

So, for your budget, compile a list of all your regular bills that you pay at the same time every month and are the same amount every month. This should include the things listed on your debt calendar, but can also include things like house payments, car insurance, etc. Then create a schedule for paying your bills, and create a realistic budget for the things that are not the same every month, or do not fall on the same dates, such as your groceries, fuel costs, clothing expenses, etc.

You can estimate if you're not sure how much these variable expenses will be, but to be safe, estimate on the high end. A smart thing to do would be to review your past bank statements and get an accurate estimate of what you are spending. Doing this may help you see where you are over-spending.

Once you have done this, allocate your income to cover your expenses, your bills, variable expenses, and your debt reduction calendar. Make sure that you have a spot in your budget for saving.

One of the biggest deterrent from sticking to a debt reduction calendar are unexpected expenses such as car repairs, home repairs, or doctor visits. So, instead of using your payments for your debt reduction, have an emergency savings fund. This will mean sticking to your goals of getting out of debt, and it also means not being discouraged by a loss of progress or an additional debt to pay. Start small, even $25 a month can go a long way if you are consistent about saving it.

Of course the only way to make your debt reduction calendar effective is to not incur more debts. Your goal is to reduce your overall debt amount, not get further into debt. So, during the months it is going to take to eliminate the debts you already have, set a goal to not get deeper in debt. Of course, as mentioned above, having a savings plan is an important part of this, however, so is changing the me-oriented, want it now, pay for it later, mentality that most people have. You need to be determined and exercise some self control so that you do not get yourself deeper in debt than you already are. Imagine how easy it will be to buy the things you want once you are out of debt, especially if you are used to spending $700 a month on debt, as is shown in the above example. That $700 will go a long way to helping you afford the whims and desires of your heart, but by waiting until you are in a position to actually buy it with cash, you will be establishing good habits, and preparing yourself for unexpected problems that may arise. Even no-interest payment plans are not wise.

Let's look at a good example to help illustrate the point:

Jim and Ted both work at the same company. They both need a new washer and dryer. The big home furnishing store in the neighborhood is having a sell on washers and dryers, and are offering no interest for 12 months. Jim buys a washer and dryer, Ted decides to save up for one first. For six months Jim makes his payments of $100 a month, with no interest, and enjoys his washer and dryer. For those same six months Ted saves $100 a month, and earns a 3.5% interest from his savings account. He has to do laundry in his old washer and dryer, or at his friends, which is slightly inconvenient. On the seventh month, Jim and Ted's company goes out of business and Jim and Ted both loose their job. Now, even though Jim is not paying interest on his washer and dryer, who do you think is in a better situation? Jim now has to come up with $100 a month to make his payment, while Ted has savings of $600 dollars, and is free from the burden of coming up with a minimum monthly payment.

Even if something is interest free, it can cause a huge strain on you financially, so it would be wiser to save up until you have enough for the item rather than commit to a payment plan, even one without interest.

Combining a debt reduction calendar with good saving, spending, and financial habits will mean reducing your debt quickly and efficiently, and preparing yourself for a better financial future.