How to Rapidly Eliminate Debt
How to Rapidly Eliminate Debt by Alan Tutt
bttp://www.KeysToPowerProsperity.com
Here is a formula for quickly getting out of debt that I've seen
from a couple of different sources. It takes a little discipline
to follow to the end, but it's well worthwhile. Just imagine not
having to pay out all that interest every month! How much more
could you afford to do if you didn't have to pay interest any
more?
Step One: STOP USING CREDIT TO MAKE PURCHASES!! This is perhaps
the most influential part of the process. If you can't afford to
live on what you earn, you're spending too much! And the only
thing you accomplish is to dig yourself into a hole that just
gets deeper and deeper. If you want to get out of the hole, the
first step is to stop digging.
Step Two: FIGURE OUT YOUR MONTHLY BUDGET What you are working
for at this step is to assign your monthly earnings to paying
off your credit debts and a little more. The more you can add to
the payoff payment, the quicker you can get out of debt
completely.
Make sure your budget allows for your living expenses such as
food, utilities, gas for your car, and between 5% and 10% of
your monthly earnings for entertainment. Anything left over
after these should be applied towards debt payoff.
What you want to do is arrange to have at least $150 per month
that you can apply towards eliminating your debt beyond the
minimum monthly payments. You may have to make some sacrifices
to make it happen, but the freedom at the end of this will be
phenomenal! Of course, the other way to make this happen is to
start earning more money. Either way, find some extra money to
pay off your debts with.
Step Three: PAY OFF THE SMALLEST DEBT FIRST Start making minimum
monthly payments to all credit accounts except one. On this one
account, make the largest payment you can (minimum monthly plus
the $150+ payoff amount). Continue this until this one account
is paid off.
Here's an example. Let's say you have 2 credit cards to be paid
off, a car payment, and a house payment. Start paying off one of
the 2 credit cards first. By eliminating a smaller debt, you'll
soon have more money each month to apply toward the next larger
debt.
To understand this further, let's look at some numbers.
Credit Card #1: $100/month minimum Credit Card #2: $250/month
minimum Car Payment: $250/month minimum House Payment:
$800/month minimum
Total Minimums: $1400/month minimum Extra Payoff $$: $150/month
>From this, you can see that we're going to be making $1550 per
month payments until everything is paid off. The first credit
card will get $250 a month payments until it is paid off.
Step Four: MOVE TO THE NEXT LARGER DEBT Now that you have one
debt paid off, start applying everything you were paying on the
smaller debt toward the next larger one. Now you're paying the
minimum payment on this debt plus the total amount you were
paying on the freshly eliminated debt.
For example, if you just paid off the first of 2 credit cards,
you will now be making minimum payments on both the house and
the car, with the rest of your monthly debt payments (equal to
the amount you have already been paying) being applied towards
the second credit card. In this example, the second credit card
will receive the original $250/month payment plus the $250/month
that we were paying on the first card, for a total of $500/month
until it is paid off.
Step Five: REPEAT AND CONTINUE THROUGH ALL DEBTS Once the second
debt is paid off, just move on to the next larger debt and pay
that one off. In the above example, the car debt will start to
receive $750/month until it is paid off, after which the house
debt will get $1550 a month until it's paid off.
Most people can eliminate all of their debts in 5 to 7 years
using this plan, and that includes their house! Imagine owning
your house free and clear in 7 years or less!
Step Six: INVEST IN ASSESTS Now that you have $1550 a month
extra income that you weren't using for living expenses,
redirect that cash flow into investments that will grow and pay
you a passive income. Do this first before you start spending it
on luxuries and whatnot. A couple of years of this and you will
have a huge investment portfolio that will give you a solid
income that you won't have to work for! How much fun will you
have receiving an income while you get to go play?