Arguably all of us deal with debt at different stages of our lives. Buying a car, going to school, purchasing a house, or just going out and paying with a credit card makes us debtors. Regardless of its source, debt is a burden that has to be addressed every month and history has shown that not everyone knows how to effectively handle it.
For that reason I find Debt Reduction feature of Quicken 2013 (expected to be a feature in the 2014 version) a great aid in helping you visualize your finances and make smarter money decisions. The feature is a three-step process to help you regain control of your finances. Those steps include: identifying your debts, getting the details, and making a plan.
Identifying your debts
You may commend several relatively small debts but Quicken puts them under the same umbrella presenting a more accurate overall picture. A $500 debt on a credit card may not seem like a lot but if you have 4 or 5 credit cards with a similar amount outstanding, it suddenly becomes significant. Having all debts added up provides better realization of your current financial position.
Getting the details
In this section you enter interest you pay on each debt item and minimum payment amount that is required. If available, Quicken can find that information for you, but you should be able to get that from your recent statement.
Make a plan
This is one of the most convincing sections of this feature. First, it graphs your debt repayment against time assuming you can only contribute a minimum payment. You then have an option to select a higher amount that you contribute towards debt repayment, which is displayed on the same graph letting you visually compare the two scenarios. Additionally, it calculates the total amount you would pay in interest under the new scenario and how much you would save in interest if you stick to the proposed plan. You can also decide to contribute additional payment towards debt repayment (perhaps a good use of your tax refund) that will be automatically shown on the graph.
If you want to try out different scenarios you can either enter the amount you are able to pay or use a slider. As you drag and increase or decrease payment amount you can contribute, the payoff date updates automatically. Once you find a proper amount, select “Next” and Quicken creates your debt reduction plan. It summarizes the most important parts of the plan such as payoff date, monthly payment and how much of that payment goes to service debt, and how much time you will save comparing to making a minimum payment every month.
It will also split up the payment amount between different credit cards, allotting more for credit cards with higher interest rates. You can make changes to your plan at any time and even select which debt to payoff first. As you make payments, Quicken follows your progress and charts it against the plan you drafted.