A 10-Step Debt Elimination System
Most people have managed to get into debt - it does not take much in these times. But getting out of debt is sometimes much easier said than done.
Here is a Simple, yet Effective, Debt Elimination system.
Take the following steps….
Your goal of debt elimination can be achieved….
1. Determine your Monthly expenses. To do this, check your recorded expenses for the last 12 months. Check everything, bank statements, credit card statements, or whatever other record you have. For cash expenses, carry a small notebook [or iPhone] for few weeks and note down all expenses, right down to the nickel and dime stuff. You will be amazed to see how they add up quickly. It is a necessary pain!
2. With the yearly figure, you can now find out the typical monthly expense, by dividing the total expenses by 12.
3. Next, make a list of your debts including your mortgage. It might be a good idea to tabulate all of this in a spreadsheet to make some of the calulcations easier.
4. Make a list of monthly minimum payments for each debt Assume that the total comes to $2000 every month. Hopefully this number is less than your monthly income. If the number is larger than your monthly income you need debt consolidation NOW.
5. Next to each debt try to calculate the remaining repayment period assuming minimum installment every month. Don't forget to add the interest charges which will be added each month, and if you have recurring credit card charges, don't forget to add these as well.
6. Decide how to pay off the debts. One way is to rank your debts on the number of months for repayment in ascending order. That means, the debt with smallest number months remaining for repayment, is the first number. Go on until the last debt. This is a good starting point, but you may need to adjust it after.
7. Move any priority debts to the top of the list. This could be any debts which have an abnormally high interest rate for example. Normally, your highest priority debt should the one that you can pay off in the minimum number of months. Your lowest priority debt is the one that will take you the maximum number of months. [Typically this will be your mortgage on home].
8. In step No. 4 you have calculated your minimum repayment as $2000. Difficult next step! Increase the minimum repayment amount by 10%.In our example this would be an increase of $200 for a minimum monthly payment of $2200.
9. To get this additional $200 for repayment, you must reduce your expenses by $200 per month, and reserve it for additional debt repayment. Carefully look at your list of expenses. Cut or slash anything which is not absolutely necessary. It may hurt a little at first, but it is possible!
10. Next, use this additional amount [$200] for repayment of the first priority debt. If you were paying $100 previously, now you will now be paying $300 [in our example]. This $300 will have a cascading effect on your repayment as soon as the first debt is paid off. You will now have $300 additional for repayment in place of $200 that you had from your savings. Your actual results will vary and there will be variations from time to time, but stick as closely to this schedule as possible.
This way you will be debt free faster. How much faster will depend on your specific case, but the plan works! The beauty of this system is that came from just a little 10% [$200] monthly adjustment that you have saved in years of your resolve to be debt free. When you have paid off the final debt, you will find that you have a much larger amount in hand to spend than your original 10% [$200] a month that you saved initially from your expenses. The cascading effect of your saving 10% [$200] will be evident in coming years.
Not only will you be just debt free faster [a few years faster?], but also will have a built a substantial base on which to build up your dreams. All this for just a 10% [$200] per month of your initial saving efforts.
But just as in any weight loss system. the long term ability to stay out of debt requires strict planning. Be careful of temptation to splurge on something unless you see the return on expense in a very strict and controlled manner. Otherwise it will take a blink of the eyes to be back where you started.