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Debt Free Step Five: Create Automatic Debt Payments

Just like any goal worth acheiving, getting out of debt takes self-discipline. But, lucky for the impulsive debtor, technology lets you cheat…

Just like anything worth doing, getting out of debt takes self-discipline. Whether you want to wake up earlier, get in shape, or quit smoking, will power is the key to achieving difficult goals. Unlike those other tough tasks, however, you can actually use technology to overcome poor self-discipline when it comes to getting out of debt.

This is Step Five of my Debt Free in Seven Steps program.

Step Five: Set up automatic debt payments so you never miss another one.

Using direct debits to your advantage
Direct deposit and online bill paying (or electronic funds transfer) have changed the way we manage money, and they make it easier to put unpleasant payments out of sight and out of mind. Even if you have additional money at the end of the month, writing a large check to your credit card while thinking about all the things you would rather be doing with that money is a recipe for a total collapse of your willpower. Of course you would rather buy that new shirt or take a weekend road trip with your friends, and if the money is just sitting in your checking account waiting, there’s a good chance that’s what you will do.

But if you automate your debt payments, similar to the way your taxes and 401k deferrals are deducted from your paycheck, your monthly debt obligations will be paid before you even realize it. One of the best things about 401k deductions is that because they are made pre-tax and before you get paid, you never “miss” the money. You can, believe it or not, do the same thing with your monthly debt payments. Automating debt payments is also the only 100% fool-proof way to ensure that you won’t tap the funds you earmarked for debt.

When to set up automatic debt payments
The most effective automated payments will be made on the day or day after you get paid. That way the money isn’t in your account long enough for you to notice it. Assuming you get paid every other week or twice a month, you can divide your monthly debt payments in two and have half the monthly amount transferred to the account each paycheck. Only do this, however, if the amount you are transferring to each account exceeds the minimum payment. There may be months when your pay periods do not line up with your billing date, and short payment will mean a late fee and negative credit mark.

Assuming you are paying more than your minimum payment twice a month there are additional benefits to making more frequent payments to credit cards. Credit card interest is actually computed on a daily basis, so as soon as a payment posts to your account you begin paying less interest. Those two weeks, over time, will make a difference.

How to set up automatic debt payments
Setting up an automated transfer can be easily done either via your bank’s online bill paying service or your loan or credit card account’s website. Just be sure that when you authorize a recurring automatic transfer out of your checking account that the transfer will always occur after you are paid. If not, you could get dinged with a bank fee for an overdraft.

Go to Step Six
Once you have established your automated debt payments, move onto Step Six: Monitoring Your Debt Elimination progress! Or, read all the steps in my Debt Free in Seven Steps system.

Published or updated on September 13, 2006

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


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  1. […] of any debt negotiation or debt consolidation techniques, it’s time to move onto Step Five: Automate Your Debt Payments. Or, check out all the articles in my Debt Free in Seven Steps […]

  2. […] Once you have automated your debt payments, you can breath a sigh of relief. Many of your debt worries are behind you. The only thing left to do is to monitor your progress. […]

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