In last weeks post, I gave you the first four steps to getting out of debt. I thought it was important to divide this post into two because the first part is preparation and the second part, which I will teach you today, is all about action!
Why is getting out of debt important? If you missed the last post, then I will summarize it shortly here. In 2013, the amount of outstanding debt in the U.S. was $847 billion. Our debt is equal to the GDP of Belgium and Denmark combined! Debt can be shackling, and it limits our ability to build wealth. So what can you do about it?
Foundations of WealthBuilding: Getting Out of Debt
Step 5: Begin with debt paid off the most quickly using the minimum monthly payment.
The key here is how quickly the debt can be paid off, not how high the interest is. Most people start with the one that has the highest interest, and because of that, they never seem to get ahead. So start with the debt that can be paid off in the shortest number of months.
Step 6: Determine your winning percentage.
This is what will really help you kick your debt quickly. Your winning percentage is going to be the extra room in your budget that you can add on top of the minimum payments of your debt.
Here are some questions to find your winning percentage (I’m sorry, but they’re not the most fun): What can I sell? What expenses can I reduce or eliminate from my life? (Does the Latte Factor apply?) How can I earn extra money? Scrounge together a winning percentage. Getting out of debt is like digging trenches—it’s hard work, but when it’s done, the waters can flow.
Step 7: Apply your winning percentage to the debt that can be paid off the most quickly.
Once you determine what can be paid off the most quickly, begin paying that off and adding your winning percentage! The added payment can make a huge impact in the time it would take you to pay off everything
Step 8: Once one debt is paid off, apply the total monthly payment to the next
Now that the first debt is completely paid off, apply the total amount you were paying on the first one to the next one. Here’s where we start cooking with grease. You’ve tackled your first, quickest payment and now you’re going to take the total monthly payment (winning percentage included) from that first payment and add it to the monthly minimum of the next one that can be paid off the most quickly. This is called the “debt snowball” technique. Again, this will decrease the amount of time and interest you would be spending
I know that this can hurt because a lot of money will end up going out of your pocket, but if you stick with it, in the long run you will have gained so much!
Step 9: Apply your vastly increasing winning percentage to accumulating assets.
After you have finished paying everything off, I encourage you to continue to invest it. By this point, you will have a huge winning percentage. Take it and put it into accumulating assets. Now it’s time to start moving toward the Second X. This part isn’t often taught in debt-freedom programs, but the reality is it can’t just be an end in itself. In addition to eliminating debt, you are working on bringing value to the marketplace and increasing your income. In seven years, you will become someone, but the question is: who?
What questions do you have moving forward relating to mastering your money? I want to make sure I am creating content that is relevant to my readers, so make sure to comment below!