You’re reading this because somewhere along the lines, you spent more than all of your money. You may have failed to control your impulses. Or maybe you were unprepared for the unexpected and ended up with so much debt from medical expenses that you’re struggling to get by. Whatever the case may be, you have debt, and it needs to be eliminated.
Have you ever heard anyone say any of the following statements?
“Having more money would fix all of my problems. I would be out of debt so quickly!”
“This new iPhone is great, and thanks to my credit card it only costs me $20/month.”
“I don’t think getting out of debt is even possible. Where do you want to get dinner from tonight?”
These people are in debt denial. It’s a serious case that affects around 50% of Australian consumers.
For you, reckless spending ends today. Follow this guide, and you won’t just get out of debt, but you’ll get out of debt way faster than you had ever imagined.
Step 1: List All of Your Debts, Their Balances And Interest Rates
Don’t let the simplicity of this step get the best of you. Get a piece of paper, a Google Spreadsheet, or open Notepad on your computer. Go to the website of every financial institution to which you owe money. Then, copy down all balances with their interest rates exactly as they appear. It’s also very beneficial to know what your minimum payments are for every account. Now, you’ll have a decent idea of how much is owed. Let it sink in, but don’t worry, in a few more steps we’re going to start getting rid of it.
Step 2: Set Periodic Goals
Becoming a goal-oriented person is one of the most powerful things you can do for yourself, in finances and pretty much every other area of life. Goals allow us to break really hard things into manageable chunks that we can feel good about after we complete them.When you set a goal to pay off your debt, you first assess how much money you can contribute toward debt repayment every month. Then you can do a rough estimate of how long it will take you to get out of debt. Just understand it could take longer than this to repay your debt.
Step 3: Start Paying Off Balances from Highest To Lowest
There are a few trains of thought when it comes to the actual debt repayment portion. The first being: Pay balances low to high. This is dumb, because it doesn’t take interest rates into consideration. The second, and more logical: Pay off the debt with the highest interest rate first, then work your way down. Make the minimum payment possible for every account, besides the one that you’re trying to eliminate first.
Step 4: Trade In Big Ticket Items
Do you have a shiny new-ish car or two in the driveway? You can significantly reduce your total debt by trading in your car for something cheap. If you can trade-in two cars and concede to just having one you could double or triple this amount. You can further apply this to boats, yachts, jet-skis, snowmobiles, or any other modes of transportation. Now isn’t the time to have toys. You can have toys when you’re debt free.
Step 5: Work, Work, Work
This one is going to blow your mind: To pay off debt faster you can work more. Overtime, second jobs, babysitting, etc. Check out this article I wrote about how to make more money. Pretty obvious, right? More money, more debt repayment.
Step 6: Reward Yourself
Achieving your goals, no matter how big or small should be celebrated. Don’t take this to mean that you should go out and spend hundreds of a dollars at the mall for paying off $100 of your debt. Instead, buy yourself a cup of coffee. For a free alternative, you could guilt people into congratulating you by posting your achievements on Facebook.
Step 7: How To Use Windfall Money
My definition of windfall money is: Any money that you receive that didn’t directly come from your employment. Tax returns, bonuses, inheritances, birthday money, wedding gifts, whatever. If you are in debt then windfall money isn’t fair game. You should apply it directly to your debt. In most cases, you’re getting free money to pay your debt. You couldn’t ask for a better gift, so don’t blow it.
Source: Extract from Johnny Moneyseed.