Nothing will cause you more grief in your life than Bad Debt.
It is any personal debt other than a mortgage or a student loan. Credit cards, personal loans, car loans, or department store credit. All are bad debt and can ruin your life.
It will steal your future and make the present miserable. This type of debt begins you on the road to enslavement and may take you to bankruptcy. Make it your sworn enemy. Treat it with care, never turn your back on it. Bad debt turns loose the interest monster.
It really is simple to get rid of, yet it can be difficult, depending on where you find yourself. Most people tend to disregard it, looking for an easier solution. They want someone else to make their debt go away.
You Can Get Rid Of Your Bad Debt
You need to know while it is simple, it is not easy. But you also need to know that what you learn doing this will serve you well for many years after the bad debt is gone as you continue in the same way with your savings and investments. What savings and investments, you say. They come later, let’s get you out of debt…
There are two ways to do this. You can use some inexpensive debt software, or you can figure it the hard way using some debt forms and a calculator.
You will need ALL of your credit statements including credit cards, personal loans, department store cards, car loans, home mortgage, doctor, dentist, and other medical bills. Anything that you make a monthly payment on because of a debt you owe.
It is amazing how much bad debt we rack up isn’t it? Anyway…
1) List Every One Of Your Debts
On the forms list all of your debts. Right now the order is not important. List the person or company the debt is owed to in the proper column. In the column for it, list the monthly payment. (For credit cards list the minimum payment due monthly). In the column marked balance list the amount owed, on the accounts.
Now in the rank column, you need to put your debts in order by the lowest balance owing to the highest. Just put a number by them. Number one for the lowest balance. Number two for the next lowest balance and so on until you have all of your bills prioritized.
Now take out the next form. On this sheet of paper list your debts in the order you determined on the first sheet of paper. List your number one (lowest balance owing) debt first. Then number two (next lowest balance) and so on, until all of your debts have been listed.
2)Pay Them Off
This is the order you are going to pay off your bad debts. Some people think you should pay off the debt with the highest rate first, then move on to the next highest rate, and then the next. This is not how you will pay off your debts.
You will start with the smallest balance because when you add some extra money to the payment you will pay it off sooner. Most people tire of a plan where they see no progress and experience no success. This way you will do both. Ok…
You will send the payment asked for on your monthly statement and add some extra to it. Bringing to bear all your extra cash on this one account. All the while you continue to make your other payments as scheduled.
Then when you pay off the first (and it will happen faster than you think) you take a percentage of the payment you were making on the first bill and add it to the regular payment on the second bill. This will accelerate the payments to quickly pay it off too. Continue on through your list using a percentage of each payment for the bill you just paid off to pay the next off faster.
3) Pay Yourself
You’ll notice I said “percentage” of the old payment. There is a reason for this. The number one problem with a program that puts all your money on your bad debts is what do you do when an emergency hits. What usually happens is the debt repayment program goes by the wayside and more debt is racked up.
If you only use a percentage of the money to pay down your bad debt you are able to put some aside for these inevitable events and still continue to pay extra on your bills. How much of a percentage? That is up to you, but I would recommend starting 50 percent.
As you pay off your bills and your emergency cushion gets large enough you can reduce the percentage going to your fund and increase the percentage going towards bills. Eventually all of the extra should go to paying off your bad debt.
You will be surprised at the speed you are able to pay off your debts. Then when you start to tackle your mortgage you can once again put a percentage into savings and the remainder toward that goal of a debt-free home.
This is doable but requires discipline. The effort is definitely worth the result!