Once I decided to become debt free before I was 40. I had to make a plan and stick to it. Deciding to become debt free was the easy part. Researching a plan of action was another thing all together. I went to the library and read everything I could on personal finance and money. I even had to go to several libraries to get more books on the subject. I found what I needed and got straight to work. Here is what I did to succeed. If any of the steps don’t apply to you, GREAT; just to the next step you don’t have any of the numbers below then GREAT, just proceed to the next step.
1. Make a list. List every debtor, total balance, monthly payment and interest rate. This was easy for me, I looked at my credit card statements. This would include but not limited to the following, IRS, child support, credit cards, medical expenses, pay day loans, personal loans, car notes, student loans, and family and friends. List everything. This will be the quite painful., but it will fire you up. Those harsh feelings that you feel while doing this step is the very thing that will keep you going when you hit road blocks. Remember we are attacking the enemy and, you can’t attack what you can’t see.
2. Prioritize. This is important. The list should be in the order of importance. This is a generic list however, you might have to make changes for personal situations. I suggest you make the list in the following order then make changes go back to tweak if needed. In order for your goal to gain power your goal must make sense to you.
A. Child support, student loans and IRS debt can’t be overlooked or filed in bankruptcy. These can really make your life difficult. These are listed first. Follow what the courts decides, but you can negotiate with the payment plan or the IRS. Just stick to the agreed- upon payment arrangements.
B. Pay day loans. These are loans that have upwards of 425-975% (APR) interest rate. These should be against the law. I ‘ve seen lots of futures crushed because of these. Sell your excess furniture, get second jobs, do whatever it takes to get these off your books.
C. Credit Cards. Credit Cards are convenient but you have to be disciplined in order to remain financially healthy. This was my big issue; I used Credit cards as a emergency fund. So when my husband couldn’t work and this family of four had no income. I turned to my credit cards. Since then, I have learned nothing beats having a cash reserve. List in order from the smallest amount owed to the largest. Don’t close them, this will eliminate your ability to negotiate a lower interest rate.
E. Medical bills. Medical billing has all their ducks in a row. By the time you get well, if you haven’t paid in full your bill they have already sent your bill to collections. You have to make arrangements with the carrier as soon as you get the bill if you can’t pay in full. If you set a payment plan and stick to the plan most won’t charge you finance charges. So be honest. You owe the money, but stick to the arrangements.
F. Other loans-List the smallest total amount to largest.
G. Car Notes. This is a little trickier. First you need to read over your contract(note). If you pay it off earlier and you have a stiff penalty then don’t . Interest is added to the front end of the note. Every payment is partly principle (the purchase price) and partly interest. In the beginning payments are mostly interest, with a small amount toward the principle. Vise-versa towards the end of the note. Rule of thumb, if you are over the half way mark then just make payments
3. Find your monthly total. This is what you have agreed too. This will not change until you’re completely debt free. All your extra money (IRS refund, birthday, overtime etc.) should go directly to the top of the list. Once that item is paid in full, pat yourself on the back, and then tackle the next debt in line. Your monthly total towards debt will remain the same, but the debt will drop off quickly.
4. No new debt. In order to truly be debt free, and for the plan to work, you must not incur anymore debt. Trust me, once you start seeing debts drop off the list, it gets easier and the excitement begins to take over. Be patient. You didn’t incur the debt overnight, it will take some time to pay off. Just stay focused on the end goal.
5. Have fun. This is the most exciting part. What ever your monthly total you spend on debt can be spent in cash for purchases in the future on fun stuff (but not till your debt is gone).
I want you to succeed. Please read a book, read a blog or talk to friends for encouragement. Find something to keep your eye on the prize.
Good Luck.
Have question about the post just list below and we can work it out together.
(Typographical errors corrected, bare with me I’m still new to writing)