Learn How to Reduce, Eliminate and Get out of Credit Card and Student Loan Debt (Part One)
If you are like the average person you have stopped, looked around and found yourself indebted to Credit Card Companies. You see your hard work (your paycheck) flying out the window as you pay a credit card company for items that you purchased five years ago. I have spent years analyzing debts and “get out of debt schemes” and ideas and have come up with a fail-proof way to assist you (for free) in reducing, eliminating and getting you out of debt. This is the first part of a multi-part series which will take you step by step through the process of reducing, eliminating and getting you out from underneath of those credit cards, student loans and even medical bills. Take the time to complete each step as outlined below. Once you complete each step go to the next part of this series and follow those steps. Once you have completed every step, stay on this program and report back here, three months later, six months later, 9 months later and one year later. I am anxious to see how you do. Please share.
Step 1: Stop
The first step to any plan is the most important step, because without it, you cannot succeed to obtain your goal. Your goal in this process is to get out of debt as soon as possible. The first step you must take is to stop using credit. Stop using credit cards, stop borrowing money, stop becoming indebted. If you do not follow this simple step, then you are just spinning your wheels. Imagine if you could keep all of your paycheck every week instead of sending $50.00 to this credit card and $75.00 to that credit card. Do not cut up your credit cards. Do not cancel your credit cards. Just stop using them. Plus you may need a credit card for an emergency. No one wants you to be caught out in the cold without any method of survival. You must also promise yourself you will not use credit cards unless it is a legitimate emergency.
Step 2: Organize
There is a little bit more to organizing your debt than you may think. In order to keep yourself going you need to be organized so that you can follow the remaining steps and so that you can keep yourself motivated. As you see your debt disappearing you will be excited about reducing and eliminating your debt. There are actually two things you need to do to become organized:
Part A: Organize All of Your Bills:
You must follow this plan or it may take longer than necessary to get out of debt. Put each bill into one of three piles: (1) Monthly Bill; (2) Debt; or (3) Medical Bill/Expense/Debt. A Monthly Bill is a bill that you pay in full each period (maybe month, quarter, etc), and it is due again the next period and is usually a requirement of living in today’s society (e.g., utilities, rent). A Debt is when a person (usually) borrows money from another and promises to pay that debt in installments overtime (e.g, mortgages, credit cards, auto loans, and student loans). Medical bills are bills that are received for services received from the medical profession, usually these debts do not carry interest, usually the entire amount is due and once paid another bill does not come unless more services are received.
Part B: Make a Separate list of each category of all of your bills.
The MONTHLY BILL list must be in the following format:
The DEBT list must be in the following format:
Date Due/Payee/Minimal Payment/Total Debt/Interest Rate
The Medical Bill list must be in the following format:
Date Due/Payee/Amount/Date of Service
**Note this system works best if completed on a Spreadsheet such as Microsoft Excell © If you choose this method, you should complete one worksheet for each of the three categories.
Now make a fourth list (called the master list) of JUST the Monthly Bills and Debt organized in order of payment due date.
You have now prioritized your monthly obligations. Your first priority is to pay your monthly bills, then your debts and then your medical bills. The medical bills are of the lowest priority as generally they do not charge interest. As you pay each bill/debt/medical bill each month cross it off of the individual list as well as the fourth list.
Step Three: Divide
This is the hardest step to get used to. But I encourage you to try. It may take a few months or a year to get to it but try it. Divide the month into three parts:
Part One: The 1st through the 10th
Part Two: the 11th through the 21st
Part Three: the 22nd through the 31st
Now, your goal is going to be to pay the bills (both Monthly and Debts) due on the 1st through the 10th on the 1st day of the month (or earlier). You want to pay all of the bills due on the 1st, 2nd, 3rd, 4th, 5th,6th, 7th, 8th, 9th and 10th on the first day of the month. Then on the 11th you want to pay all of the bills due on the 11th through the 21st of the month. Finally on the 22nd you want to pay all of the bills due on 22nd through the end of the month. This method enables you to only worry about paying your bills 3 times a month. Plus you will be able to pay off your debts faster (you will learn why later). For the time being you will ignore your medical bills.
Step Four: Pay Minimum Payments and Focus on One
Now you need to pick one DEBT and you are going to focus on this debt. You are going to pay this debt off first. It is important to pick the correct DEBT to payoff first. You want to ignore the interest rates and pick the debt that has the LOWEST balance. Throughout the rest of this multipart series we will use the following facts as an example.
John has four credit cards and John has made his debt list as follows:
Due Date Payee Minimum Payment Total Debt Interest Rate
1/3 Card A $25.00 $1,000.00 15%
1/12 Card B $75.00 $3,000.00 22%
1/19 Card C $50.00 $2,000.00 29%
1/25 Card D $100.00 $4,000.00 27%
John would pick Card A as his focus DEBT. John is going to focus on Card A and pay that debt off first. John will make the minimum payments on the remaining cards, but he will try to make larger payments on Card A. John will try to pay an extra $15.00 on Card A and then pay the minimums on the remaining cards.
As each successive month passes the minimum payments on all of the cards will go down, but what you will do, is make the minimum payment due on all your debts except the focus debt. On that focus debt you will pay the sum of (1) the amount paid last month plus (2) the difference of the previous month’s minimum payments on the remaining cards.
So we switch to February for John
Due Date Payee Minimum Payment Total Debt Interest Rate
2/3 Card A $24.00 $ 985.00 15%
2/12 Card B $74.00 $2,980.00 22%
2/19 Card C $49.00 $1,975.00 29%
2/25 Card D $99.00 $3950.00 27%
When John makes his list in February, you will see that the minimum payment for each debt has gone down. John will pay $74.00 on Card B, $49.00 on Card C, and $99.00 on Card D. However John will take the $3.00 that was saved this month by the reducing minimum payments and add that to what he paid the previous month on Card A ($40.00 – the minimum payment plus the extra $15.00) and pay $43.00 on Card A. And John will the following month pay $43.00 plus the “savings” on the reduction in the monthly payments on Cards B, C, & D. But it does not stop there (as you will learn in part 2 of this series). And the same is true for each successive month.
You must take the “Focus” seriously and try to pay it down as fast as possible because once Card A is paid off, the “Focus” will change to the next card with the lowest balance. Also, you want to make sure you never pay less than you paid on the focus debt the previous month. Once Card A is paid off, the amount paid per month on Card A is added to the minimum payment on the new focus debt. This is called “Rolling.” Because you will be rolling one payment into the next card’s payment. For example, once John pays off Card A, his focus will change to Card C (the card with the lowest balance). Let us say that at the time he pays off Card A, he was paying $60/month on Card A and Card C’s minimum payment was $39.00. John would add the $60.00 he was paying on Card A, to C’s minimum monthly payment and make payments of $99.00 per month on Card C (plus whatever he was saving on the reducing monthly payments on Card B and D). Now John is making a real dent in his debt (and so will you). John is paying $100.00 month toward a $1,900.00 debt and his payments will increase so in less than 19 months he will have this debt paid off. Then he will take the $100 month (plus whatever he has increased it to) plus the minimum payment on Card B (the new Focus- because it has the lowest balance) and pay that toward Card B.
For the time being try to add as much as you can to the focus minimum payment.
For part one of this Series, that is sufficient information to get you started. Once you have completed the steps above, come back and look for Part Two of this series. In future Parts of this series you will learn so much more you will be amazed at how quickly and easily you will be able to get yourself out of debt. And remember after you have this set up, come back and let us know how you are doing.