How To Get Out Of Debt The Easy Way

Debt - a huge problem for many. And often it becomes such a burden we just don't see any way to get out from under. But there is a way I developed (and used) in 1972... 

First --- PUT AWAY THE CARDS! Better still, cut 'em up. 

I refer to this as the Debt Reduction Snowball - grab a piece of paper and a pencil, and jot down every debt you have, starting with the smallest and working up to the largest. Jot down the balance and the monthly payment. Now take that smallest one and find a way to pay it off in full. Hold a yard sale, sell some unnecessary stuff, or get a part-time job. Whatever it takes, pay off that smallest debt. That will be the hardest part of this plan. The rest is all but automatic. 

 

Now take the monthly payment you WOULD have paid on that and add it to the monthly payment of the next smallest debt. This will pay it off faster. Once that bill is paid off, you now take the monthly payment you WOULD have paid on the two smallest debts and apply it to the next debt. Your payments are beginning to snowball. As you pay off the smallest debts first, you get to apply a lot more to the largest debts, paying them off faster. Even your mortgage, if you wish. 

 

Here is an example. Let's say you have (5) debts as follows:

1.  $400 gas card at $20 a month 
2.  $1000 credit card at $50 a month 
3.  $2500 credit card at $120 a month 
4.  $8,000 car payment at $240/month 
5.  $130,000 mortgage at $1,000/month 

 

Pay off #1 any way you can (without borrowing). Now apply that $20/month to debt #2. You are now paying $70/month on debt #2, paying it off a lot faster, and saving you interest. Now you have paid off #1 and #2, which leaves you $70/month extra. Apply that to debt #3. You now pay $190/month on debt #3, paying it off in half the time because of the interest you are saving You now have $190/month to apply to debt #4, so you are now paying $430/month on that debt, paying it off much, much sooner. And now you only have one debt - your mortgage. You now pay the $1000/month mortgage payment plus an extra $430 a month toward principle (any principle you pay reduces the interest you will owe, and also pays the debt faster). 

In no time at all your mortgage will also be gone. In fact, in this example the mortgage will likely get paid off in half the time and save you tens of thousands in interest charges. And once you are debt free, consider staying that way. While it may be tempting to again borrow and get all the "toys", there is a lot to be said for the peace of mind that comes from being debt free.

 

Brought to you by "The Simple Man's Guide to Real Estate"  /