Strategy for Paying Off Debts Faster

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You will eventually find that your household budgeting program will free up extra cash. Hooray!! If it were me, I would use that money to pay off debts. As I mentioned at the beginning of this mini-course, your goal is to get your total debt (excluding your home mortgage) below 50% of your total annual gross income.

White Wealth Belt (WWB)
Jumpstart Training Mini-Course

  1. White Wealth Belt: Introduction
  2. Cleaning Up Your Credit Report
  3. 3 Debt Relief Options If You Can No Longer Make Minimum Payments
  4. Creating a Household Budget
  5. Strategy for Paying Off Debts Faste
  6. Saving and Investing Strategy & Conclusion

 

But even if your debt is already under the 50% threshold; don’t be lulled into a false sense of security. You have to look at things in the context of what’s needed to reach Yellow Belt status. In particular, a Yellow Wealth Belt holder must have accumulated enough in savings that would allow them to pay off a good chunk of their debt right now if they absolutely had to.

You’re the best judge of how your finances are affecting your life. So if you’re hurting, continue to push the debt downward. The key is to reduce it to a level that is easily manageable and gives you some breathing room. Then you can start directing some of that extra cash to savings and investments.

Any way that you can pay off your debts is good, but here is one strategy that I like.

The Accelerated Debt Pay-Down Strategy

  1. List all of your individual credit card balances, outstanding loans, etc., in a spreadsheet. This way you’ll have a complete picture of your targets. Here’s an example:

Name and Type of Debt

Outstanding Amount Owed

Interest Rate Charged

  • Visa

$2,200

17.6%

  • Car

$21,000

10.5%

  • American Express

$6,500

14.3%

  • Rooms to Go

$3,100

13.9%

  • Etc.

 

    1. Tackle the debt with the highest interest rate first. In the above example, that would be the Visa credit card. Shift as much of your money as possible to get it paid off.
    2. Next, take the monthly amount that you were using to pay off the first debt and add it to the amount you’re using to pay down the debt with the next highest interest rate. In the above example, this would be American Express debt. Do this until the debt is eliminated.
    3. Then, take the monthly amounts that you were using to pay off the debts from steps 1 & 2 and add them to the amount you’re using to pay down the debt with the next highest interest rate. In the above example, this would be Rooms to Go.
    4. Continue this same process for eliminating the debt with the next highest interest rate.

The rationale behind paying off high interest rate debts first is because you should get rid of those that are draining your wealth the fastest. Plus, it is highly unlikely that the profits you’re earning on your investments are anywhere near the debt rates to at least have an offset.

You’re going to be pleasantly surprised by how well this strategy works. And as you pay off each debt, reward yourself. Don’t buy anything expensive, just a little something to put a smile on your face. This will provide positive motivation to encourage you to keep the momentum going.

Action Step:

  • Implement the Accelerated Debt Pay-Down strategy for eliminating your debt

>>>Saving and Investing Strategy & Conclusion>>>

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