Stop! Get Out of Debt Now!

Are you sick to death of having piles of bills to pay every month? Do you feel like every dollar you make is spent before you ever earned it? Some of the biggest problems in people's lives are as a result of money. Many people would benefit from a class on money management. Why this is not taught in our public school system is beyond me, but here is some advice to help you pay off debt systematically and successfully, so you can start enjoying your hard earned cash.

First, don't despair over it. Don't let it get you down. There is hope. It may take a while and you will have to learn to be disciplined, but you can do it. You have the power to get out of debt, you just need to make some changes.

Now, you need to get back in control of your finances. So, the first thing you need to do is make up a good budget. The best way to do this is to monitor your spending for one month. Figure out about how much you're spending on groceries, gasoline, savings, and household expenses. Come up with realistic figures for each of these categories. Next, gather together all of your statements for bills you're making payments on. You'll want to input this data in an excel spreadsheet, or some type of good budgeting software that will help you keep track of everything. Now that you have all of your debts in front of you, you'll want to record the amount owed, the minimum monthly payment and the interest rate. There are 2 ways to look at paying down debt. The first way has you paying off the items with higher interest rates first. This will allow you to pay less in interest overall, so it will cost less to pay off your bills. The other option is to pay off the bill with the largest minimum payment first. This would free up a larger chunk of money to put toward other bills sooner. The only time I really recommend this method is when you have a bill with a large amount of monthly payments that's already close to being paid off. For example, if you pay $300 every month for your car payment, and the total amount you owe is $1000, paying it off early gives you access to that $300 per month even sooner and can start making a larger dent in your other bill payments.

So, here's how you're going to do this. Once you've figured out all of your monthly expenses (using the minimum payments for all your debts) including a small budget for savings and fun, figure out how much you have left over. That amount is going to be applied to debt payoff. The entire amount will go toward one debt every month until that debt is paid off. Now, you have that amount, plus the minimum payment you were already paying on that debt to go toward the next bill. This continues until you have paid everything off. You can see how this will have a snowball effect and the more bills you pay off, the faster the rest will be paid. Here's an example (please keep in mind these figures are totally made up just to show how this works - the minimum payments probably don't match the balances):

Gross Monthly Income: $5,000 Household Expenses (including savings, groceries & fun money): $4000 Car Loan: $300 (total owed: $6,000) Visa: $150 (total owed $3,000) Mastercard: $50 (total owed $1,000) Student Loan $100 (total owed $3,000) Total minimum monthly debt payments (from above): $600 Total monthly expenses = $4600.

This means I have $400 left over every month that I can spend toward one debt. Let's say based on the interest rates of each debt and the amount owed, I decided to first focus on the Mastercard, then Student Loan, then Visa, and then the car loan.

On the first month I would pay the minimums on everything except the Mastercard. That lucky bill will get $450 ($50 is the minimum already budgeted + the $400 extra money we are spending toward bills) every month until it's paid off. In this case, it will be paid off in less than 3 months. After the mastercard is completely paid off, I'll now be able to pay $550 every month to the student loan ($100 already budgeted minimum payment + the $450 I was spending on the Mastercard). When the student loan is paid off in just a few months, I'll start paying $700 per month to my Visa card. After that's paid off, the car loan will get $1,000 a month until it's paid off. See how this works? I can now choose to keep this extra money to do with as I please (making sure to not get myself into a position of debt again), I can save all of it or a good portion of it each month to really help prepare for a rainy day, or I can put that amount or some of it toward my mortgage and get that debt paid off quicker top.

I can also do a combination of the 3. See the freedom you will have in just several short months of diligent work toward paying off your bills? Possibly, at this point you're thinking, but I have WAY more bills than that, and much less extra money each month to put toward bills. Remember, this was just an example to show you how it works. It WILL work with any budget (as long as you have a little positive cash flow). You can also make more available money by finding areas to spend less. Buy things on sale, go out to eat less, etc. In the end, even if you only start with $50 per month extra, this will still work. It may take you a little longer, but you'll see the same snowball effect as it gets going. In the end, you'll be glad you focused on it and got it done. It's much better to work hard for a few years at paying it off completely, then being stuck in the bondage of debt for the rest of your life. Remember there is hope and you CAN do it!