Can you do it yourself?
Out of all the different ways we have been talking about over the last few days, getting debt free yourself will probably be the first option most people try. Simply for a few reasons.
- It cost you nothing to do it yourself. Other than just paying the debt off.
- You don’t have to qualify for the program. It’s your program.
- Finally, you can do it how you want to. You have complete freedom of how you want to get debt free.
How do I get debt free?
This is the biggest question people consider when they want to get debt free. Some will just pay minimum balances on all there accounts or apply a little extra to every account thinking it will save me more than if I just made the minimum payment. Along with that doing some tough budgeting to apply more money to your debts. But does this work?
However this may seem like a great way to go about getting debt free but there is a difference in getting debt free just by doing some strict budgeting or actually putting a plan together. This plan is in known as the debt snowball plan. You may have heard of people like Suzie Orman or Dave Ramsey talk about this.
How does the debt snowball plan work?
The plan is actually very simple. Although once you impliment it you must stick to it.
1. Agree that you won’t stack up more credit. If you keep adding to your credit cards or any other debt then getting debt free will not actually work. You must stop using your credit. You must also stop creating new credit as well. No new credit cards.
2. Gather all of your current debts. Get all of your credit card bills, HELOC (Home Equity Line Of Creidit), car loans, personal loans, school loans, and mortgage bills together. Include all debts not just the ones with higher balances.
3. Line your debts from lowest to highest balance. This order is how you will pay off your debts. Some will say pay off the highest interst cards firsts. I disagree. Order them from lowest to highest ballance this way you will see progress right away in the plan. Also put your mortgage last to pay off. The reason being there are some great tax benifets to your mortgage as apposed to your credit cards. Also credit cards will usually have higher interest rates.
4. Pay the minimum payments. Pay all the minimum payments on all of the debts except for the one with lowest balance. The debt with lowest balance you will pay the minimum payment along with an extra $50 to $200. Whatever you pay extra keep it the same. Don’t add or subtract any of the extra that you pay. So if you apply $100 extra always keep it at $100.
5. Continue to pay this until you have the first debt payed off. For example if your first credit card balance is $1000 and the minimum payment is $50 then pay the minimum plus an extra $100 or whatever you choose to pay extra.
6. Celebrate! This is a very important step that most skip. Celebrate that you have paid off a debt especially your first one. You don’t have to do anything big. Maybe you go out to eat at a nice resturant, take the kids to the zoo, or go see a movie. Have some fun with this. Getting debt free doesn’t have to be a drag. It can be fun too.
7. Start paying off the next debt. Start paying off the next debt with the next lowest balance except this time add the $100 that you are paying extra plus the $50 you paid on the previous debt along with the minimum balance you are paying on the current debt. Do this until the debt is paid off.
8. Celebrate again! Obviously you know why this is important from reading step 6.
9. Pay off the next debt. Again start paying off the debt with the lowest balance and add the $100 extra payment along with the minimum balances you paid on the previous two debts.
10. Celebrate again! Again you know the drill. From here just keep on repeating steps 9 and 10. Once one is paid off continue on to the next debt with lowest balance applying all the minimum payments plus the extra $100.
You can see how this will eventually begin to escalate to the point where the only debt that is left is your mortgage. Then with all of those minimum payments you were applying to your credit cards along with that extra $100 you will have that mortgage paid off in now time at all.
I’m debt free, now what?
Once you are debt free start saving the money for an emergency fund. Save six months worth of expenses in some sort of savings account for emergencies only. This way if sudden expenses do come up they won’t dig you deeper into debt.
After you have an emergency fund established save the rest back for retirement and possible college savings for your kids.
Last but not least take action. This is the only way you will solve the problem. If you wait you to long you may have no other choice but to consider debt negotiation, consumer credit counseling, or worse bankruptcy. Do let that happen to you.
Start Now!
Finally, are you using this method to get debt free? Are you interested in doing this program? What are your concerns?
Read part 2 of getting debt yourself to learn the pros and cons of this program.
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