How to ELIMINATE DEBT SUPER FAST!
When it comes to reducing debt, no one does it better than Dave Ramsey. Never heard of him? Ramsey is an author, radio host, and television host with goal in mind: helping families become free of debt.
Having learned about debt the hard way in his younger years, Ramsey now makes it his full-time job to help families avoid the trappings of debt.
His overall Total Money Makeover system consists of seven «baby steps,» which Ramsey recommends doing in a specific order:
1. Starting an emergency fund of $1,000 (to help cover emergency situations).
2. Paying off debt using the «debt snowball» method.
3. Saving three to six months of income as a long-term emergency fund.
4. Investing into Roth IRAs and pre-tax retirement.
5. Funding college for children.
6. Paying off the home mortgage (early!).
7. Building wealth and giving.
While all the steps to financial security are important, this how-to guide will concentrate on showing you how to pay off your debt using the «debt snowball» method.
Will it be easy? Not necessarily. Will it be painful? Possibly. Will it help you eliminate debt super fast? Most definitely.
Ready? Let’s get started.
List all your debts.
Using a piece of paper (or the computer, if you wish), list the balance of all the debts you currently owe and the interest rate you are paying. Don’t guess at this. Use the last month’s statement or call the creditor if you need an exact balance. Be completely honest with yourself. List everything from the loan from your mother-in-law to your past due cell phone bill. Do not include your home mortgage in your list in this step.
List your debts from smallest balance to largest balance.
Reorganize your list from the smallest bill to the largest. If you have any bills that are past due, list those first before your other debts. (Don’t worry about the interest rate at this point. However, if two bills have the same balance, and one has a higher interest rate, list the higher-rate bill first).
Develop a plan of action.
Once you have listed all your debts, develop a plan for paying them off.
In his book, The Total Money Makeover, Dave Ramsey suggests spending your money on paper before actually spending it for real. The word «budget» can sometimes be a bad word, but really this is a «spending plan» — a plan for how you will spend your money.
Write down your income for the next month and «spend» that money on paper first to see how much money you can apply toward paying down your debt.
Find a way to pay off the debt with the lowest balance.
Taking money from your «spending plan» that you have budgeted and any other money you can find, pay as much as you can on the debt with the lowest balance.
Get intense. Think outside the box. Sell stuff on Ebay. Hold a garage sale. Pick up a part-time job. Do anything possible for that little bit of extra money you can apply toward that smallest debt.
Once the first debt is paid off, use the payment from that debt and apply it toward your second debt.
Hopefully, your smallest debt was a small balance, and you were able to achieve some quick success.
Once that first debt is paid off, take the amount you were paying on the first debt —- combine it with the minimum balance you’re paying on your second debt — and begin paying down the second debt.
Again, use some creativity and out-of-the-box thinking to see what extra money you might be able to use toward debt reduction.
You’re now full-force into the «debt snowball.» See how it works? The minimum balance for your first debt snowballs into your second, which then snowballs into your third, etc.
Your debt «snow ball» gains momentum with each bill that you pay off.
Complete the debt snowball.
After the first few months, hopefully your debt snowball is becoming a debt avalanche, and you’re making significant progress toward paying down your debts.
The amount of time it may take you to complete the debt snowball varies from person to person, depending upon how much debt you may have and your disposable income. If you have a few small bills, you may be able to become debt-free in just a few months. If you have a significant amount of debt, it might take a few years.
The important factors in completing the debt snowball include focus and diligence. Even when things get tough (the car breaks down, your furnace needs repaired, or there’s a medical emergency), keep your eye on being debt-free. You can do it.
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