Everyone Wants To Be Debt Free!
In spite of all the TV commercials about your credit score, and all the ads that want to get you to get a Mastercard or Visa card, or American Express, or whatever, It’s way better and a lot more stress free to be out of debt.
Borrowing Money Puts You In Bondage!
And who wants to be in bondage? Whether you’re in bondage to the credit card companies, or in bondage to your father-in-law, it doesn’t matter. Going into debt puts you in bondage to your creditor!
Who holds the cards here? Do you? Do I? Nope, the creditors hold all the cards. I don’t like that situation. Not at all!
We Live In A Credit Society
From the time we start high school nowdays, we are told that we need to get a credit card to build up a good credit rating. We are told that it’s an admirable goal to go into debt, make your monthly payments, and build credit, so later on when we want to buy a car or a home we have good credit and can get a loan.
It’s a trap. Plain and simple. Credit card companies love to charge that 18% to 21% interest, or highter, on our credit balances. If we pay the minimum regularly, we will be in debt for many years.
But that’s all right, because we are used to being in debt. We love the convenience of using credit. We can get what we want now, and pay for it later. And pay for it, and pay for it, and pay for it….
There comes a time when we realize that we are deep in a hole and can’t see how to get out. We’re not like the federal government. When we reach our debt limit we can’t just vote ourselves a raise to our credit limit and print more money.
I think that the federal debt is one day going to collapse our economy, but that’s a story for another day.
So how can we dig ourselves out of the pit we are in?
Bankruptcy is one way, but it’s painful and puts us in a different kind of hole for a while. There’s a better way.
Have You Heard Of The Debt Snowball Method?
Popularized by Dave Ramsey in his book “The Complete Money Makeover,” which I highly recommend, the debt snowball method is a great way to get out of debt.
How Does It Work?
You know how a snowball gets bigger and bigger if you roll it in snow, don’t you?
If you’re like a lot of us and you have 5 or six credit cards, a car loan, and a mortgage, you have a lot of debt. Then there are student loans to add into the mix. If you have all that debt, you’re pretty normal. Sad, isn’t it? If you want out of debt, and can’t see the light at the end of the tunnel, here’s how the debt snowball works:
List all your debts in order, from the smallest total balance owed to the highest. Don’t worry about interest rates, that’s not in consideration here. Many believe that they should pay off the highest interest debts first, and do it that way. That will work, but psychologically it’s better to pay off the lowest balance owed debt first.
The reason is that you can pay it off fastest, and there’s a psychological boost to doing so.
After listing your debts, pay extra every month on that debt with the lowest total balance. Pay as much as you can above the minimum monthly payment. Even if you can only afford to pay $10 or $20 more than the minimum payment, PAY IT! That extra money goes directly to the principal.
Pay the minimum required payment on the rest of your debts while you concentrate on the lowest balance.
Example: Let’s say that your minimum payment on that lowest balance debt is $30, and you can pay $20 extra, so you are paying $50 per month on that bill, and the minimum on the rest of your debts. If you’re really strapped, you can pay the interest owed each month on the other debts and ignore the principal. Your debt won’t go down, but your creditors will be getting their interest so they shouldn’t be calling you.
Now, pretty soon that first debt will be paid in full. Your creditor will be happy, and you will be happy because you won’t be in bondage to that creditor anymore.
Now start on the second lowest balance, and do the same thing. Suppose the minimum monthly payment on that debt is $40. What you MUST DO is apply the amount that you were paying on the first debt to the second one. That means you will be adding $50 to the $40, and paying $90 per month on the second debt. Already you are paying it off faster than the first debt, because you’re subtracting $50 from the principal balance every month! Continue making minimum payments on the other debts.
After the second one is paid off, move to the third and apply the same principle. Take the $90 you were paying on the second debt and add it to the minimum payment of the third debt, until it’s paid off.
With this method, you will be accelerating the payoff of each debt as the ones before are paid off because you will be paying off more of the principal each time. That’s the snowball!
Here’s A Great App To Help You Keep Track.
There’s an app called Debt Payoff Pro, and you can download it to your phone or tablet for 99 cents. You can add your debts, and it will list them according to balance. You can add your payment info, and it will adjust your debts each month and you can keep track of your progress.
I used Debt Payoff Pro while I was getting out of debt. It’s well worth the 99 cents.
Here’s a screenshot so you will know what to look for from the App Store:
Be Patient And Keep At It. You CAN Become Debt Free
You might have hiccups along the way. There might be a month when you can’t pay the extra on the lowest debt. Don’t get discouraged, just hang in there and keep at it. The Debt Snowball method works, and if you follow the steps, you WILL become debt free!
You can get Dave Ramsey’s book “The Total Money Makeover” online. Don’t expect to pay with a credit card, because Dave won’t let you add to your debt to get his book. You can use a debit card or Paypal, or even send him a check.
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