DEBT MANAGEMENT: THE QUICK WAY OUT OF DEBT! Some of you have asked me about debt management and the best strategy (in my opinion) to eliminate debt. Debt is a major cause of stress in our lives. And as a starting point in the financial planning process we need to get out debt under control and design a game plan to eliminate it and then form a budget.
We as a country have taken credit and debt beyond the limits of where it should go. The Bible mentions money and possessions over 2,000 times! I think that is because there are so many lessons we can learn from how we manage our finances and why. So lets start with a clean plate in 2010.So whats the best way in my opinion to organize and get yourself out of debt?
The best way to get out of debt fast: pay off the smallest debt first to create the greatest momentum in your debt snowball.
The math seems to lean more toward paying the highest interest debts
first, but I have learned that personal finance is 20% head
knowledge and 80% behavior. You need some quick wins in order to stay motivated to achieve your debt-free goals. Once you start knocking
off the easier debts, you will start to see results and you will start to win in debt reduction.
Debt Snowball Plan
The principle is to maintain minimum payments and focus on one debt at a time. Otherwise, your effort seems diluted and little accomplishment is seen. First, accumulate $1,000 cash as an
emergency fund. Then begin intensely paying off all debt (except
the house) using my debt snowball plan. List your debts in order with
the smallest payoff or balance first. Do not be concerned with interest
rates or terms. If two debts have similar payoffs, list the debt with the
higher interest rate first.
Build Momentum
Redo this list each time you pay off a debt so you can see how close you are getting to freedom.
Keep the old papers to wallpaper the bathroom in your new debt-free
house. Once an old debt is paid off, the amount you were paying is rolled into the payment for the next debt on the list. So the New Payment for this debt is found by adding the amount you used to pay on the old debt to the amount you have been putting towards this new debt. In this way, you have
compounding payments which will get you out of debt very quickly.
Payments Remaining refers to the number of payments remaining. Cumulative Payments are the total
payments needed to pay off that item. In other
words, this is your running total for Payments Remaining.
Debt Free!
You attack the smallest debt first, still maintaining minimum payments on everything else. Do what is necessary to focus your attention. Keep stepping up to the next larger bill. After the credit debt is taken care of, you are on your way to financial freedom!
Want to give it a try? Below is a link to a program that will do the calculations for you! Send your friends and family to this page for debt reduction tools and information.