Let’s Talk Dirty – Part 3

Marci • January 12, 2012

Five Step Debt Reduction Plan

Our goal is to assess your debt then work to reduce it. The first half of building wealth is saving with your wealth account. The second half is to reduce your debt. Both need to happen at the same time.

Here is the 5 step plan:

Step 1 :  Fill out the debt elimination box, listing every debt that is not secured against an asset.
 Debt Name Amount  $ (2) Min Payment  (3) Interest Rate Factoring #
Step 2: The Factoring #

Take the number in column 2 and divide that number by the number in column 3. This is the “factoring number.” Fill in the factoring number for each debt.

Step 3: Priority Pay-off Box

Take the debt with the lowest factoring number and list it first. This debt is the first priority payoff.  Continue to list the debts in order of their factoring number, with the lowest factoring number debt in first place, the debt with the second lowest factoring number in the next, and so on.

 Order of Payoff Name of Debt Factoring # Min Payment

Download my FREE Budget Spreadsheet HERE ……It will guide you through these steps.

Step 4: The Jump Start

At this point, you need to create a household budget. If you’ve never done one, I have tools and tips to help you with the process. A budget gives you a clear understanding of where your money comes from and where it is being spent. Budgeting also enables you to see what expenditures can be reduced or eliminated

Looking at your budget, in addition to the minimum debt payments required, you are also going to take $200 from your current spending and allocate it to debt. This may sound intimidating, but consider that $200 a month translates to about $7 a day. By reviewing your budget, reallocating $200 may not be as difficult as you think.

Step 5: Debt Payments

Take the debt listed first in the priority pay-off box and apply the $200 allocation to it. Continue to pay the minimum monthly payments on all your other debts. Once you have paid off the first debt, apply the same payment method to the second debt listed, and so on. Your commitment to making minimum payments while also applying the jump start allocation is vital. Also consider the accelerated payment that happens when, as you pay off one debt, its minimum payments stay within the debt pool (add to the $200) and contribute to the next debt’s payments.

By the time you get to the debt at the bottom – the one with the highest factoring number or the number of months to pay off the debt based on the original monthly payments – you will see that you will pay the debt off much faster than the factoring number states.

Download my FREE Budget Spreadsheet HERE ……It will guide you through these steps.

And just like that, no more dirty laundry!

 

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