A Two Step Process For Paying Off Debt
Millions of people are strapped financially because of massive debt.
Revolving credit is reaching record levels. The majority of
individuals with high credit card balances pay only the monthly
minimum. Of course, we have all heard how long it takes to pay off
the debt when remitting this amount. To compound the problem, the
banks raise the limits once an individual shows consistency in making
the payments. They make more money the further in the hole that
someone gets. It is a endless cycle that one gets on with the only
ending being bankruptcy.
No strategy for reducing or eliminating debt will occur without a
change in spending habits. It should be obvious that the present
spending pattern created this situation to begin with. Lack of
discipline is often the root of most financial difficulties.
Naturally, there is always the exceptions of layoff or divorce. It is
necessary to get honest if the circumstances are to change.
It is easily apparent yet still needs to be stated: if the credit
card company raises the limit, that is not a license to spend more.
Many people feel that when the money is given to them, it is their
obligation to spend it. No thought is given to how it will be
repaid. From this point forward, nothing more is put onto the credit
card. If you are in a hole, it is a good idea to stop digging.
Now we use the following two steps to get out of the hole. It might
seem rather simple, yet that is what makes it effective. People tend
to not do things that are overly complex. We are dealing with ingrain
habits developed over decades. It is important to design a plan that
is easy to follow.
Step 1: Find additional resources to apply to the debt
It is necessary to increase the our payments over the minimum. To do
this, we must find additional money to add to that payment. This
seems difficult for many since they believe that all their funds go to
paying their bills. However, in most instances this is not true.
When people write down exactly what they are spending money on, they
quickly learn that hundreds of dollars a month is discretionary
spending. For example, while it is necessary to eat, does one have to
eat at a restaurant 5 days a week. Bringing a lunch will save between
$4-$6 per meal. Also, many like to buy a coffee on their way to
work. A savings of $30-$90 per month is realized by brewing it at
home.
We found that most people regain a minimum of $200 a month by looking
at their habits. Additional savings can be found by altering the heat
or air conditioning by a few degrees. This will save $20-$30 a
month. Calling the cable company and switching to the basic package
saves another $40-$60. It is easy to see how cutting back on some
of the luxuries saves a fortune. Some believe that high speed
internet, maximum cable service, and unlimited cell phone calling
plans are necessities in life. They are wonderful items if you can
afford them. However, when one is in dire financial straights, these
are some of the areas to regain funds.
Step 2: Apply the additional funds to the lowest balance card
This is where a lot of financial people will squawk. Their
philosophy is to apply this money to the card with the highest
interest rate. While this makes sense on paper, it does not take into
the account the mental aspect of life. People who are in debt feel
that they are underneath a mountain. The outlook is dark in the best
of circumstances. When individuals make the necessary cutbacks
previously mentioned, it is extremely demotivating to see a lack of
progress. Paying the smallest balance first improves the mental
makeup.
Here is how it works. One continues to make the minimum payment on
all the high balance cards. The additional $200-$300 is applied to
the lowest balance card. Lets say that $600 is owed and we are able
to pay $300 a month. Obviously the balance will be paid off in 2
months. This gives one an incredible sense of satisfaction. It is
easy to see that some progress was made. After the first card is paid
off, the money that was used for that one is applied to the minimum
that was being paid on the card with the next lowest balance. Thus,
if $30 was being paid, the minimum remitted will be $330 ($30 +
$300). Again, we pay this until this balance is eliminated. This
continues until all the debt is paid back.
Dennis Harting is the Head Coach at Your Rich Life. He is an
acclaimed speaker, trainer, and best-selling author. His
international best selling books include Your Easiest Million and The
Ultimate Procrastination Handbook. He also has had thousands of
articles published worldwide. His programs and more information can
be found at http://www.yourrichlifeinc.com.
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