Canadian Finance Blog

Posted: 25 Aug 2010 02:00 AM PDT

When you are struggling against a giant debt load, it seems like everything becomes an obstacle to your success. Banks raise interest rates, your next raise at work seems unobtainable, you constantly struggle to keep from busting out the credit card at the mall. At times, the task might seem impossible, and the overwhelming pressure of being “debt free” weighs heavily upon your shoulders. Debt reduction, bulking up the emergency fund, saving money on groceries, all these tasks are not fun, but they are necessary for financial freedom. So what do you do to keep motivated? The best thing to do, in my estimation, is keep track of what you already are doing.

Essentially it boils down to tracking your progress. Anytime that you have a debt, as long as you are making payments greater than the interest being generated by the debt, you’ll be making progress towards paying off your debt. Even if it is a dollar at a time, you’re still making progress. Not only will tracking this progress encourage you to be making even larger payments, it will also be a way to see just how much you’ve already done.

I got a hint of this feeling of accomplishment the other day when I realized that two of the loans that my wife and I share are at a point where we could, on a whim, pay them off completely. It would be a huge financial stretch to do so, but if we felt the need, or fell into some money, then we absolutely could pay them off. This sense of accomplishment, going from imagining that I would be paying on these loans for another 5-10 years, to realizing that they are literally just one paycheck away from disappearing forever, reenergized and revitalized my desire to pay off debt. I feel like this simple emotion is enough to keep me motivated towards paying off my debt, and even enough to make me want to pay it off even faster. I wanted to capture that feeling, so here’s how I plan on keeping myself motivated by tracking my progress.

Keep a Paper Trail

First and most importantly, you’ve got to keep all your paperwork. Hopefully this is a financial accounting practice that you’ve already been following, but if you haven’t, then I seriously suggest you start now. Even if it is something as simple as throwing all your money-related papers into one “catch all” folder (not the garbage), then you can worry about sorting them later. Once you have your papers, you now want to take them and organize them. Find all your papers that relate to a specific debt and set them aside. If you have multiple debts, make multiple piles. Once you have your paper piles, organize them by date. You want to set them up in chronological order so from newest to oldest.

Develop a Tracking System

Depending on what type of learner you are, and whether or not you respond better to visual or artistic stimulation as opposed to simply numbers on a piece of paper, this part may differ for individuals. However, the basic point of having a tracking system is to be able to see what progress you have, or have not, made. The simplest method is to simply go through your paper trail and write down the overall loan/debt balance month by month over the length of time that you have had your debt, or at least as far as you have papers for. This could look something as simple as this:

August $3475.22

July $3553.81

June $3620.20

May $3701.06

If you’re interested, you could also track how much of each month’s payment is going towards interest. On one of my debts, I like to watch the monthly interest fees go from $15, to $12, to $9, and dropping. Every month they get less and less money from me!

Now, if you would prefer a more visual approach, feel free to take those data points and plot them on a graph that reaches zero. That way you can watch the graph fall towards being debt free. Or make a poster that has the total amount of money highlighted and represented by a thermometer or a cup of water or a Christmas tree. When the temperature is zero, when the cup is empty, when the tree has burned to the ground, then you’re debt free! Use these tools as motivation to constantly remind yourself of where you are and where you want to be. The only person that can get you out of debt is you, so make sure that you are the one that is being motivated to save money!

For some debts, it might seem like you’re making a lot of progress, and for others, it might seem like you’re not making very much at all. Hopefully, in either case, you’ll realize just how much of a difference a few more dollars each month might make, and strive to put a little extra towards you loan each month. Every little bit really does help, and by tracking your progress, you’ll see just how much!

Do you track your progress? What tools do you use to keep track of your debts? How do you stay motivated?

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