Debt Reduction 101

Starting July 1st, we are on a strict debt reduction plan to rid ourselves of all debt aside from our mortgage. I'm kind of dreading all of the necessary cut backs, but at the same time LOVING the idea of being 100% debt free.

We don't have a crazy amount of debt, but I do have a nasty habit of buying something on the credit card with the intention of paying it all off straight away, but then don't! I hate how I do that. It's usually an internet purchase...

I will be removing my credit card from my wallet as of July 1st and sticking it somewhere far, far away and hard to access. I actually think it probably would be best to just cut it up all together.
No temptation there! We paid my way through school (3 years) and had 2 kids (back to back and EI doesn't pay that well). So we incurred a bit of debt during those times of our lives. Plus it doesn't help that I only work part time so some weeks money is great and other times it's just okay.

As for saving money, we're great at it! Thanks to ING's savings accounts, we are able to set goals and automatic have money go into it. Now the smart thing to do would be to use our savings to pay off the debt and move on... but we put in a pool instead. :s

I have been doing some reading on debt reduction and thought I would share what I have learned.

1 - pay off your highest interest rate debt first. It could be your smallest debt amount, but paying it off first will save you more money paid in interest. Once that debt is paid off, use the money you were spending on those payments and start paying off your 2nd highest interest debt. Continue to make minimum payments on other debt.

2- you should put at least 15% of your net income towards debt repayment.

3- apparently there is such as thing as "good debt". That would be using credit to obtain things such as a house and an education. You should not use credit for things that are consumed quickly, food (restaurants, groceries) and trips. Of course if you have the cash to pay for these items and are using them for convenience, that's fine. But you HAVE to pay them off within 30 days to avoid being charged interest. That's the part I suck at.

Anyway, we should be debt free in a few short months, but it's going to be tough not buying something good when I see it. I think I'll have to avoid Winners and Homesense since those places are all about the impulse buy!

Here are a couple of good links to help understand more about debt and how you can reduce it.
Calculate a plan using this tool.
and figure out a budget with Gail Vaz-Oxlade's budget builder here.

On a completely unrelated note, I never did get around to making sunscreen!