Yes, there is a better strategy to pay off existing debt. The following is a provable debt elimination strategy, if you followed with discipline, you will get you out of debt in a record time.
- Step 1 – You need to make a commitment that you will not add any new debt to your debt load.
- Step 2 – Find a minimum $5 per day in savings. It is very easy to spend $5 a day on coffee, launch at work, a drink out with friends, renting a movie, etc… This is where you can find the needed extra cash.
- Step 3 – Take a white paper and write down who you owe money to. Write down your debt e.g., ABC Bank Visa, interest rate, minimum payment and the balance owing of each debt.
- Step 4 – Sort all debts by the highest interest rate. Let’s assume you have three debts. Number them as Debt No.1, Debt No. 2, and Debt No. 3
- Step 5 – Each month; pay the current minimum payment on each debt, except Debt No. 1. Add $150 (The $150 came from “$5 savings a day X 30 days) to the minimum payment amount of Debt No. 1. Pay the new amount on Debt No. 1. Repeat steps 5 until Debt No. 1 is paid off. If you can save more, multiply the daily savings by 30 days and use that amount instead of the $150. Let me give you an example. Let’s say the minimum payment of Debt No. 1 is $100. The new amount is $150 + $100 = $250. Pay the $250 on Debt No.1 and continue paying the minimum on Debt No. 2 and 3 until Debt No. 1 is paid off.
- Step 6 – When the first debt is paid off, repeat the process by adding the amount that you paid on Debt No.1 to the minimum payment of Debt No. 2. Pay the new amount on Debt No. 2 and continue paying the minimum on the remaining unpaid debt. Repeat step 6 until Debt No. 2 is paid off. Let me give you an example. Let’s say the minimum payment of Debt No. 2 is $200. The new amount is $450 (amount paid on Debt No. 1) + $200 (minimum payment on Debt No. 2) = $450. Pay the amount of $450 on Debt No. 2, and continue paying the minimum on Debt No. 3 until Debt No. 2 is paid off.
- Step 7 – Begin eliminating Debt No. 3. Follow the same logic applied in Step 6, until Debt No. 3 is paid off. Let me give you an example. Let’s say the minimum payment of Debt No. 3 is $300. The new amount is $750 (amount paid on Debt No. 2) + $300 (minimum payment on Debt No. 3) =$750. Pay the amount of $750 on the Debt No. 3 until Debt No. 3 is paid off.
- Step 8 – Should have more debs, you can repeat step 6 until all your debts are paid off.