Eliminate my debt! It’s a plea coming from more and more Americans these days who feel overcome by the burdens of too much debt in a bad economy. Although this blog normally focuses on the effects of government debt, we feel it is equally important to share tips on the proper management of personal debt.
There are several viable approaches for dealing with too much personal debt, including debt consolidation loans, home equity loans, and others. But in this article, we want to share a strategy for systematically eliminating your debt and becoming debt free. It requires discipline, but it’s not as hard as you might think.
This approach assumes that you still have your job or your primary source of income. The process is known as “snowballing”, and properly applied, it can eliminate your debt faster than you ever imagined.
1. The first step is to list all of your debts in order, from smallest to largest. List them according to their balances, not according to their monthly payments. Include credit card bills, college loans, car loans, personal loans, mortgages, and any other debt you may have.
2. The second step is to make some cuts in the “discretionary spending” areas of your life. Your goal is to come up with an extra $100 to $500 per month that you can apply to debt reduction. Look for areas where you are either wasting money or where you can cut back. Examples might include dining out, entertainment, clothes, travel, etc. Get creative. The more money you can identify, the faster you will eliminate your debt.
3. Next, you want to focus on paying off the smallest debt balance you have. Keep making the regular monthly payments on all your other debts, but on your smallest debt, you should make your regular monthly payment PLUS the amount of extra funds you came up with in step 2. Keep doing this every month until that debt is eliminated.
4. Then you focus on the next debt on your list. Keep making that debt’s regular monthly payment PLUS the amounts you had been paying toward the debt you just paid off in step 3. Keep doing this every month until that debt is eliminated.
5. You keep following this formula for each debt on your list. Using this approach, the amount you are paying toward each debt keeps growing as you move down your list. This is where the term “snowballing” comes from.
Countless people have successfully eliminated their debt using this technique, and you can too. The key is consistent, focused effort.
Thank you for visiting this site and reading this article on debt elimination. Your interest is very much appreciated, and you are invited to read additional articles on this site.