Note: Ready For Zero is now shut down, but don’t worry!
I’ve found an even better free tool – Undebt.it!
What would you do if each day, every day, you had to unnecessarily shell out an extra $11.02 for the privilege of owning stuff you already bought?
For the non-math-inclined, let me put that another way: that’s $4,022.30 each year that you don’t need to pay. What would you do?
You’d hustle your ass to find some way to stop paying it, wouldn’t you?
This is exactly how much I pay every day in interest charges. I found out this number thanks to one of my favorite free resources, Ready For Zero.
Guys! Debt payoff is a thing! Ready For Zero can help!
One of the first steps I had to take when learning how to manage my finances was actually figuring out what my real situation was. I knew I had debt, and I knew I had to make payments each month, but I couldn’t have told you how much debt I was actually in.
The most horrifying thing was probably that I didn’t even know you could pay off debt early. I thought that was a luxury thing that only high-earning people did, along with buying airplanes and quail eggs. I don’t know. I’m not rich. I thought I would just be making debt payments for the rest of my life.
I didn’t know that regular people like me could pay off debt, let alone that there were strategies to do so.
So, when I heard about Ready For Zero and what it can do, I knew I had to try it out.
Take Stock Of Your Debt
Ready For Zero is a simple tool to use. You can add in all of your debt (loans and credit cards) under the Accounts tab. If your accounts are online, you do have to give up your login information, but it’s a sacrifice I’m willing to make for such an awesome tool.
You can even add in accounts manually, which helped with one of our old auto loans. I’m sure we can log onto it online through the bank, but we haven’t really done this, and so it was just easier to add it in manually.
The only downside is that we’ll also need to update the manual accounts ourselves rather than having it update automatically. Once you add in all of your debts, you can head back to the Overview tab to check it all out.
Unfortunately, while this is the best tool I’ve found for this type of job, it’s still not much fun looking at the final numbers for the first time. I’d much rather plug in the information to all my investment accounts and find out how much money total I have in these spots. That would be a much better surprise.
But in this case, ignorance is not bliss. Coming to grips with the reality of the situation will only help you in the long run.
In my case, this is what it looked like:
Develop A Plan
While Ready For Zero is neat because it can organize all your debts, one of its main strengths is that it develops a payoff plan for you. Specifically, Ready For Zero uses the debt avalanche method. This is where you list all of your debts from highest interest rate to lowest interest rate, and prioritize paying off the highest-interest-rate debt first.
This is what ours looks like:
Once that debt is fully paid off (the Chase credit card, in our case), you take the amount you’d been paying towards the old debt, and apply it to the next-highest-interest-rate debt, ad finitum, until every last penny of your debts is paid off.
Here’s what that plan looks like for us: if we paid the minimum payment possible on all of our debts, we’d pay $1,145.21 each month. Once we pay off the highest-priority debt (the Chase credit card), theoretically we can stop making that payment.
Instead of doing that, we continue to pay a grand total of $1,145.21 each month towards our debts. We just allocate the amount we were paying ($67.91) to the next-level-priority debt (the Lending Club loan).
We repeat the process until we’re left with one debt (the Edfinancial student loan), at which point we’ll be sending in $1,145.21 each month—well over the minimum payment.
The plan works best from a mathematical standpoint because theoretically, if we can afford the $1,145.21 debt payment now, we can continue to do so in the future until all of the debts are paid off. As long as life doesn’t throw us a curveball, we’ll be fine.
Modify The Plan
Of course, life never works out as planned. Maybe I’ll be able to afford to pay more towards my debt in the future, or less, if I’ve already paid off one of my loans.
The beauty of Ready For Zero is that you can make small tweaks to your plan and see what the impact will be further down the road.
To see how this works, let’s take a look at the stats for my current plan. Let’s assume that I will make no extra debt payments and only pay the minimum amounts on my debt according to the debt avalanche method outlined above:
According to this plan, I’ll be 100% debt free on July 1, 2023—just in time to celebrate my 36th Independence Day. I’ll have paid off almost $83k in debt, and paid an extra $13k in interest.
Let’s say that isn’t convenient enough for me. 2023 is a measurable point in the future, but maybe it’s not soon enough. I have things to do! I don’t want debt hampering me forever.
If I adjust the slider and pay an extra $500 per month towards my debt payment, here’s what happens:
With this gung-ho approach, I can pay off my debt two years earlier, and save an extra $4k in interest.
There’s a lot I can do with an extra $4k in two years. According to this model, if I hustle my butt, I don’t have to pay this money in interest. I can still get it back now, if I work hard to pay it off early.
And that’s my favorite part of the whole program: I can literally see what the effect of debt payoff will be for future Lindsay. I can finally pull back the smoke and mirrors, and make sense of my debt so that I can deal with it once and for all.
Do you use Ready For Zero? What other debt management tools do you like? Leave a comment below!