Killer Debt Is Like Quick Sand.
January 4th, 2008 Categories: Buyer and Seller Knowledge Center
With the media attention on foreclosures and credit card debt there are a number of businesses advertising to contact them so they can help people get rid of their debt.
Maybe they can, but most likely they cannot.
But individuals can help themselves to get out of debt at zero cost. All that is needed is the will to get out or reduce debt, a change in attitude and minimize the use of credit.
First to eliminate debt a person has to develop a mind-set of wanting to eliminate their debt. The second thing the person has to do is to write a plan to eliminate all or as much of the debt as possible.
Assuming the mind set is in place, the plan becomes easy.
- List all debt by lender, total amount owed, the interest rate, and monthly payments. (Note example below).
- The next step, list all family expenses and determine which expense can be eliminated or decreased.
A simple task of decreasing an expenditure is to buy a cup of coffee that cost $ 2 instead of $ 5 per day. The individual hasn’t given up coffee, it simply meant finding a place that sells coffee for $ 2 per or less.
Our debt example by vendor/amount owed/interest rate/monthly payment:
Credit card #1 $ 5,000 9% $ 50
Credit card #2 $ 10,000 14.5% $ 100
Credit card #3 $ 2,500 18% $ 50
Mortgage $ 250,000 6.5% $ 1,850 (principle and interest)
Auto Payment $ 25,000 8.5 % $ 375
The Method.
Eliminate the smallest debt amount first (in this case it would be credit card #3).
Add the coffee savings of $ 3 per day or $ 60 per month (5 days per week times $ 3 times 4 weeks) to the payment for credit card #3. Total amount that would be paid per month totals $ 110. Add a note telling the lender that the added payment ($ 60) is to be used to decrease the principal.
If you do not add a note with the payment the money received will be treated as a regular payment with interest being deducted first and whatever is left over going to the principal.
It is critical that you tell them (the credit card company) what it is you are doing. Then each month check to see that it was done as you instructed. If it wasn’t find out why and get the lender to correct the transaction.
Keep paying the minimum monthly amounts on the other cards and debt payment items.
The focus is to pay off on the smallest total amount. Do not worry about the higher interest rates or lowest interest rates just the amount that is due.
The reason to attack the lowest amount is to realize a quicker pay off and see a quick result and accomplishment.
When that debt is paid off reward yourself with a little something…..a movie?
Once credit card # 3 is paid, look at the next lowest amount and in this case it will be credit card #1.
Add to credit card #1’s monthly payment the $ 110 you used to pay off credit card #3. The total payment for credit card #1 now becomes $ 160 per month. As before add a note to the credit card company that the increase payment (in this case the $ 110) is to be directed to the principal.
The same step would be taken to offset the next lowest amount, which is credit card #2. The total payment would be $ 260 per month with (again with note showing that $ 160 going towards the principal).
The next in line would be the automobile and lastly one can attack the home mortgage the same way.
Whatever credit card debt that you create in month while this plan is in place has to be paid off monthly. Otherwise it will not work.
As the credit cards are zeroed out do not close them. Use them knowing that the any monthly use will be paid off each month. And it will help your credit score.
So to get out of debt requires a mind set and secondly, action. When finish you will be surprise as to how much cash you have each month. Why? You are not paying the interest.
How much did it cost you? Nothing. You helped yourself and can take the steps necessary not to get back into debt.
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