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Automate Debt Payments

Pay Off Debt With Automation

To the uninitiated, debt happens. For me it came way later in life when I had my guard down. I’ve been an ultra-conscious debt avoiding maniac but it seems after 14 years of focus, all I had to do was take my eye off the ball once. This is how to pay off debt with automation.

Not only did I take swift action to fix the problem but I leveraged technology and my laziness to make sure it stayed out of my hair. In this article I’m going to detail everything I did to turn my situation around.

The Concept

In case you didn’t know, I have a daily podcast where I talk money. That meant that I was not only ridiculed by my mother but by the entirety of the internet for getting into debt. Ok, maybe not the whole internet but there were definitely a ton of people commenting on the blog and emailing me with not so kind things to say. In an effort to redeem myself I decided that I would exhaustively document how I escaped my debt of roughly $17k at the peak with automation.

This guide is setup in the order it’s intended to be acted on. Some people may say things like “refinancing should come first” but as it turns out, many aspects of this guide take time to play out including refinancing. What I’ve hoped to do is try and structure it such that you can immediately start benefiting and reduce the workload of managing the debt. It turns out that obsessing about your debt for hours does nothing towards reducing it.

Automate Payments Efficiently

When I was in college I subscribed to Skeptic Magazine. I instinctively question everything and I often don’t believe that anything will live up to the hype. While I had used Ready For Zero to map debt and generally thought the tool was pretty cool, I had difficulties trusting the tool would manage my debt better than I could. Would minimum payments be missed? Was it just a glorified payment scheduling platform? As it turns out the answers are no and no.

The reason I decided to give Ready For Zero a try is because it uses the Stack Method, a vastly superior method at reducing debt. Why is it superior? Because it’s based on cold hard math. Dave Ramsey will say you don’t get the “emotional” win of paying of individual cards which I think was probably correct in 1995 but please, take a look at this:

rfz_graph1

That’s the awesome RFZ graph that shows the progress of my debt reduction. Those gold circles on there are when I’ve brought a credit card balance to zero. I also get trophies and encouraging emails when I make major break throughs. By making major breakthroughs I mean RFZ does this because I basically do nothing. If a visual representation of your progress coupled with a killer team of debt reduction cheerleaders isn’t motivating then I don’t know what is.

Ok that’s all well and great but I still have debt spread across five credit cards in addition to a mortgage – managing it all is madness. Or it was until I finally had enough faith in RFZ to let the tool take the reigns.

The setup is very easy and smacks of a sexier version of Mint – a version Mint might have been if it wasn’t purchased by a company who makes all their money off of a paid competitor to Mint but I digress. You add in your debt and your checking account that you’re going to pay through. There are additional layers of verification due to the whole payment portion of things which went great except for my AMEX account where I was a bit confused. I emailed Shannon and she fired back with a near-instant reply showing me what I had missed.

When RFZ pulls in your credit card details it grabs both your balance and the interest rate you’ll pay on your balance month. Then, it sorts your debt such that the most expensive debt goes on top and focuses all of your non-minimum payments on the first account. This is what mine looks like now:

rfz_accounts

Doesn’t the Stacking Method look sexy when you visualize it?

Including emailing Shannon it took me maybe 20 minutes to set everything up, wait for RFZ to sync and enable debt payment from my checking account. You can only automate payments if you pay for the tool at $10/month otherwise your automation stops here and all you can do is admire the tool’s elegance. It does serve to at least provide the emotional wins allowing you to choose the Stack Method over other less effective methods. If saving time and reducing stress is worth at least $10/month to you then continue on. For what it’s worth, you almost certainly have Netflix and you don’t NEED that. Whatever, you’re an adult.

The hardest part for me was letting go and trusting the tool. I have an immaculate credit history so I had palpable anxiety turning over control. It was kind of a big deal for me. When I finally took the leap and witnessed their focus on making me feel comfortable about the whole thing it changed everything. I mean they email me days before my payment goes out, they withdraw the money a little early so I don’t screw myself over AND after the payment posts they let me know how much I saved on interest by making that payment.

Never having to think about the status of your debt is an amazing experience and I highly recommend tasting it at least once. The tool distills debt payment down to the absolute basics. To do this, comes with some assumptions. First, RFZ will always pay all minimum payments. Second, it will follow the Stack Method and direct all payments above the minimum to your most expensive debt. Finally, when your most expensive debt is paid off it will redirect all payments to your next most expensive debt and continue that approach until all the debt is gone.

rfz_payment_plan

All of that work is done behind the scenes and you can choose to receive alerts or not every step of the way. All you need to do is make a decision on your payment plan, something you setup when you first signup for Ready For Zero Plus. You decide either when you want your debt to be gone or, how much you plan on contributing every month. RFZ does all the rest.

That’s it. Sign up, get over your trust issues and let the computer do the heavy lifting. Still have some small unresolved trust issues? Just check out the RFZ payment tab and you’ll get to see every payment made and every future planned payment.

rfz_payments

Optimize Your Credit Score

Your debt is automated, great! Now what? Now we focus on squeezing a bit more up side out of your credit score so we can get a better deal when we look to refinance exceptionally expensive debt – like credit card debt.

I’m not going to go into too much detail here as we’ve already created an episode on it and Candice also wrote a killer article on it. I will try and break it down into the basics for you.

  1. Sign up for CreditKarma.
  2. Increase your Credit Limits.
  3. Reduce your credit utilization by paying down debt.

Follow Credit Karma’s advice and you can’t go wrong. Spend a month doing the best you can to make your credit situation look as pretty as possible then move on. Too much delay on this step will significantly reduce the benefits you’ll get from just refinancing already.

Refinance Expensive Debt

I get a lot of questions about refinancing – like a lot. Most of it stems from a misunderstanding of what debt refinancing is and why it’s important.

First, why is it important? Simply put you will save a ton of cash – the more cash the longer it takes you to pay down your debt. So, while I can save some nice cash with my remaining $11k in debt I could save a lot more if that number was higher. Since debt compounds in some cases monthly and daily in other cases (like your mortgage or student loan) it’s really important to reduce the size of the penalty you get hit with every month. It’s that simple.

Imagine you were offered a Honda Civic for 12 payments of $1,000 or 24 payments of $1,000. Without a doubt you’d pick the first option. If you’re paying down an 18% APR credit card and looking to refinance it at 7%, the comparison is not that different from our Honda Civic example.

Slickly, Ready For Zero integrates Prosper refinancing into their platform. It takes all of 3 minutes to apply and RFZ will come back to you with something like this:

rfz_refinance

While RFZ makes it super easy to refinance through their tool, I’ll be doing my refinance with Lending Club because I’m already a big fan and an investor over there. Once I finish that process I’ll be documenting it in an article of its own. In the end though Prosper and Lending Club are virtually the same thing and I don’t really think that you’ll get a better deal from one or the other. It really comes down to personal preference.

What Does All This Mean?

For me it’s all about my time and stress level. Between my day job at iHeartRadio, Listen Money Matters, spending time with Laura and trying to go outside I don’t have a lot of time to spare. Perhaps more importantly, I don’t want to spare my time – especially not for tedious stuff like paying down my idiotic debt. If Ready For Zero only saves me two hours a month, I’d only have to earn at $6/hour for it to be worth my investment in the tool.

I’m lucky that $10 won’t sink me but what will is stress. I’ve got quite a lot of gray hairs already (hey, I’m married) and I don’t want any more. Last thing I need is die early because of an accounting distract that the computer can handle for me. Plus, the computer won’t make mistakes and if there’s one thing I’ve learned with this whole debt this is that I’m definitely not immune to mistakes.

Featured Image Photo Credit: “Berlin sculpture, Gedachtniskirche” by Nelson Minar

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  • Andrew

    RFZ should be paying you guys for all the promoting you guys do for it.
    I know I started RFZ because of this site, though I’m too much of a controlling finance person to automate it. I also get some sort of sick satisfaction in coming up with my “plan”.
    But the site is great to help guide me on what to pay off first and how long it will take me at the current rate.
    I can confirm, that Shannon is possibly a cyborg, with emails going directly to her brain so that she can respond to emails, almost before you finish clicking the “send” button!

    And Andrew, we didn’t send you hate mail, only tough love.

    • Hah, Shannon is beyond amazing and it turns out, she’s even cooler in person!

      As for earning off of our recommendations, we usually work in reverse. For example, we love Acorns and while we make nothing from referrals that may soon change through some negotiations we’ve been having. Basic strategy is: Find awesome stuff we love -> figure out how to make money from it. We truly believe that we can earn money honestly and so far it’s been working out pretty well.

      As for the tough love, I needed it so thanks for dishing :)

      • Andrew

        Should I email you guys a list for everything I tried because of this website?

        • Definitely man, that stuff is hugely insightful for us! We may build something of our own one day and all this info helps push us in the right direction :)

      • Shannon_ReadyForZero

        Thanks Andrew :).

    • Shannon_ReadyForZero

      Okay this is AWESOME. No, I’m not a cyborg but I’ll take that as the coolest compliment ever ;).

      And yes, we are so lucky that LMM promotes us so much! LOVE these guys :). Keep me posted on how things go for you, Andrew!

  • Lee Jones

    this is silly. 12,000 is nothing. just pay off with cash flow. reducing interest on 12k is not that big of a deal .

    big debtors will not get out of debt playing the interest rate game.

    PS-this is very good entertainment.

    • Lee, that’s awesome $12k is nothing to you. For people living outside major metro areas, that’s housing for a year.

      This strategy will work even with big debtors, companies like LendingClub will refinance up to $40k. If you have more than that, you attempt to refinance in chunks and focus your pay down on the sums you can’t refinance as they are more expensive.

      • Lee Jones

        You need to give Dave Ramsey a call. In 4 or 5 months we can hear your IM DEBT FREE scream.

        Suze Orman n Clark Howard are the wishy washy way to get out of debt. Pay highest int rate yadda yadda yadda! Paying off debt requires intensity, Quit your fancy schmancy beverages till you get it done.

        • Lee, I think you misunderstood the episode and perhaps need to hear our discussions on Dave Ramsey’s approach to debt reduction.

          First, we’ve never had a negative net worth. We never wanted to sell assets to pay down the debt that snuck up on us so we created a debt reduction plan.

          Second, Dave Ramsey advocates a mathematically inefficient approach towards debt reduction. That’s fine and to each their own but we focus on the quickest, most efficient, automated approach towards debt reduction. So, as such, we’d never call Grandpa Dave ;)