Why reducing debt matters
The Borrower is slave to the Lender
Depending on the type of debt you are in, this can become very serious.
This is why we give three simple steps to reducing your debt.
Tip #1 – List your Lenders
For each note the following
- Creditor Name
- Amount Owned
- Payment frequency and minimum payment
- Interest rate (APR)
- Any fees for being late or similar consequences
Put all of them in a table like below to create the necessary overview.
|Credit Card||10.000$||Monthly||14%||100$ for delayed payments|
Creating this overview may be depressing, however it is the only way to get started repaying.
Classic debt items
- Student Loans
- Car Loans
- Credit Card deficits
- Consumption loans
- loans from family and friends
Tip #2 – Create a Payback Plan
For creating your plan, there are several strategies.
However one of the best strategies in our experience is to
- Pay as much as possible on the smallest loan
- Pay minimum payments on all other loans
- Once the smallest loan is paid off, the payments toward that loan goes into the second smallest loan.
Looking at the example overview, the order would be as follows
- Credit Card debt of 10.000$
- Car Loan of 32.000$
- Student Loan of 78.950$
- Mortgage of 150.000$
As you get rid of the different engagements, you keep snowballing those payments into the next one.
One thing to consider is, whether you want to start investing once you are at the mortgage you have.
However the key understanding you need is;
DO not increase your living style. This will absolutely ruin your path to financial freedom.
You want to get rid of debt and become the Lender!
Tip #3 – Don’t go splurge
It’s tedious and annoying at first, however the results are well worth it. As the loans start going away you will feel a great sense of relief, which will motivate you to go through the last.
However, it’s amazingly important to not splurge to celebrate. You need to keep a scorched earths tactics.
No eating out, no new cars (Drive that old junk), no spending on consumer goods etc.
Dave Ramsey on the matter
Whether or not you are religeous, there is good advice in what Dave Ramsey has to say on the matter