Getting Out of Debt Using Personal Finance Software
Date: November 14, 2016
On the surface, getting out of debt seems like a simple process: Just pay off your loans and credit cards as soon as possible. In reality, it's seldom that easy. If your goal is to eliminate your debt, personal finance software can help you get more money out of your monthly budget by focusing your available resources where they'll do the most good.
Enter Your Financial Information
Organizing all of your payments is essential if you really want to get a handle on your debt. Financial expert and CPA Sean Stein Smith says, “Taking the time to do a thorough assessment helps you better understand how much you owe, what you need to pay back on a monthly basis, and how this compares to your monthly income.”
With personal finance software such as the Quicken Starter Edition, this is actually an easy process. The program prompts you for your bank account information, bills, investments and monthly spending. It will even begin adding information automatically, like your credit card minimum payments. Getting started only takes about 10 minutes.
Analyze Your Spending
As you begin entering information on your daily and monthly spending, the program automatically shows you a pie chart of your expenses so you can see exactly where your money is going. From there, you can click on the chart to see a detailed list of what you spent. The software also shows you how much you have left in your checking account based on your spending to-date.
Create a Budget and Add Bill Reminders
Planning a budget isn’t as daunting with the right tools in place. Use your financial software to set up a budget for all your household expenses or just for specific spending categories, like "Food and Dining." The status bar for each item in your budget shows you how much you have spent and how much you have left as the month progresses.
You can also use that information to add bill reminders for payments that are due throughout the month. The Quicken Starter Edition makes recommendations based on the information you've already entered. You can use these recommendations or edit them, and add any other recurring bills you might have.
Set Up a Debt Reduction Plan
High interest rates don't just increase your debt — they eat away at money you could be using toward other things. Quicken's Debt Reduction Plan makes it easy to identify which debts you should give priority based on their interest rates. In many cases, the software can automatically determine what the current interest rates are, along with the minimum payments required, simply by connecting with your creditors. If that information isn't available, you can enter the interest rate yourself using the information on your monthly statements. When you select how much you want to pay each month, Quicken creates a payment plan that zeroes in on the debts that are costing you the most so you can pay them off as quickly as possible.
Watch Your Progress
Quicken's Debt Reduction Plan includes a convenient chart that shows you when you'll be out of debt based on your current payment plan. If you can afford to make higher payments, just change the values and the chart will show you how much more quickly you will be debt-free. Quicken can even provide you with your credit score, which is updated automatically after you enter your personal information, including your name and Social Security number. As you pay off your debts, you can see how it affects your credit score each quarter.