Free yourself from debt bondage! Is debt weighing you down?

The average personal debt is about $38,000 with credit card debt being about 50% according to this CNBC article.

Personal debt is defined as credit card, auto, personal line of credit and student loans.

20% of Americans spend 50% -100% of their monthly income on debt repayment. Not much left to eat and have a roof over your head. This is scary!

Some say that debt is good, really. Have you seen the headquarters of banks and credit card companies? What if I told you that the car dealers make more money financing vehicles then actually selling them!

Just for fun take a look at this article about debt-to-income ratios.  I find this bordering on a sick joke, but they are trying to sell you on debt consolidation. Not a good thing. You need to get rid of it all. Debt consolidation will not solve the problem it will only put you deeper in debt because you have not gotten rid of the problem.

Most of us will not be able to buy a home without a mortgage but that is not the subject of this article. But there are some that use the 100% down program. Yep they pay cash!

I want to zero in on personal debt and how it is holding you back. This debt is stealing your wealth.

It is bad in many different ways!

Here is an interesting little piece of information I ran across, paying off your debt increases your brain power. Image that! May be the stress is gone and you can more clearly focus. Imagine paying off your debt and increasing your brain power. What will you do with the new super power!

So at this point I want to establish that all debt is bad including mortgages. There is no such thing as good debt as some experts would like you to believe. Get rid of it and the faster the better. Don’t let anyone especially broke people convince you otherwise.

 Don’t let anyone tell you that to become independently wealthy you must use other people’s money (OPM). The whole thing is a horror show! Not a good plan. Didn’t work for me!

Way back when I knew everything (lol) I tried using OPM to get rich. Well it did not work out too well. I had over 13 yes thirteen credit cards with various limits. Nice, right! Wrong. The plan was to use one to pay off another and continue to build available cash to invest. Sounds pretty good right. Wrong again.

I would use the excess to invest and build a nice cash flow from OPM and then be able to pay off the cards. Well one investment doesn’t work out so now I have this credit card bill and no way to pay. The stress level begins to build and then payments become late and calls begin.

Well I think you get the picture. I did get it under control only by refinancing my house and rolling the debt into the payment. I did learn from this and have not used credit card or credit in general except for a mortgage. I solved the problem by rolling unsecured debt into secured debt not the smartest thing to do but I did it. Not certain I would take the same approach today. The bright spot was that I learned from this and unfortunately it was painful.

I still wonder what could of been had I not used OPM! This probably set me back 10 years.

I have just one credit card I use and it gets paid off monthly. This has happened now for over thirty years. It takes discipline and dare I say budgeting on a regular basis. Nothing goes on the credit card unless it is budgeted. Yes budgeting!

Getting a budget in place is your first step to eliminating your debt! You do have a budget, right! If you need some help in constructing a budget find help here.

The next step is deciding how you will attack your debt. First question is how much do you have and what are they? What rates are they? What is the monthly payments? How much of your monthly income is going to pay debt? Hopefully it is not 50% – 100% as discussed above.

If you have come this far in the article you are serious in freeing yourself from debt bondage! I am so proud of you. You have finally become serious.

I promise you will not be sorry that you have begun this journey.

Now let’s turn our attention to how. The title says “Three popular plans”. I will discuss them below.

1. The debt snow ball.

   This plan requires you to list all your debt from smallest to largest regardless of the interest rate. Begin to pay on the smallest one putting extra money against it to get it paid off as quickly as possible. So if the smallest was say $1,000 and you paid extra on it to get it paid in three months that would free up about $300 to put against the second largest.

Use the $300 plus the minimum payment on the next debt plus any extra you can find and attack the next debt. Continue this until you have completed paying off the second debt.

Continue this until you have completed paying off all your debts.

As you begin to pay them off you cross them off your list and you begin to get some traction and see real progress. This begins to give you some momentum and you continue to pay one off one at a time until you reach the last one. Rolling the payments made to the next one in line.

Now this requires you to not add any additional debt which means you are now on a pay as you go basis for all your purchases. This is important for you to accomplish this.

So summing up this method list all debt smallest to largest. Make minimum payments on all except the smallest. Pay extra on the smallest to get it paid quickly. Then take that amount and begin on the next debt in line adding the payment from the one paid off to the minimum payment of the next in line. Continue to do this until you have paid them all off!

As the debt get larger it is going to take you longer, but the payments will be larger.

2. The debt avalanche.

   This is similar to the debt snow ball except that it requires you to pay off the highest interest rate first. So you list all your debt from highest interest to lowest regardless of amount owed.

Then begin to pay above the minimum to get the balance paid off on the highest interest rate debt. Once the first one is paid off move onto the second highest interest rate debt similar to the debt snow ball.

The big difference here is that you may not feel like you are making any traction because the highest interest rate could be the biggest debt. This may take a while. But it may be downhill from there. You may also get discouraged and give up. Don’t give up!

You can do it!

These are the two most popular methods to pay off debt, either one will work!

So let’s move onto the third method. I never heard of a third method? Well today is your lucky day!

3. The Salami method.

   What? Yes you read that right the salami method! This is simply just taking it one step at a time. Nice and easy. Do first things first. The debt snow ball and the debt avalanche will work! Only problem is you need to put a couple of things in place. So let’s start nice and easy.

   1. You need to stop the madness. No more borrowing for anything!
   2. Pull together a budget. Get help here in pulling that off! A solid budget is important.
   3. Begin an emergency fund. This is one of the reasons you could fall back into debt. Start small get $20. Then build it to $100, $500, $1,000. This goal of $1,000 will get you stabilized. Do this as quickly as possible. Sell something, get a second job or side hustle. Once out of debt you will want to build a larger fund.
   4. Freeze you credit cards. Get a bowl put all your cards in the bowl and freeze them. Or you could just cut them up. Your choice. You must not use them again.
   5. Choose the debt snow ball or debt avalanche. Get organized and start paying them off.
   6. Continue until finished. The goal is between two and three years to get them all paid off.
   7. Put a chart on the refrigerator and as you pay one debt off cross it off. Create a visual show progress. You need to stay motivated.
   8. Tighten the budget.
   9. Find extra income.
   10. Do whatever it takes!

I think you get the idea. You need a plan. Anyone can do it with discipline, hard work and convection. Make your plan, list it in detail and as you progress through it begin to chart your progress.

Will this be easy? Of course it will be! Not really, but the rewards will be like nothing you have ever experienced! What will you do with the extra money? Extra money, yeah the payments you were making to the banks and credit card companies, the auto loans, the student loans. These payments will now be yours to keep. What will that be like?

What will that be like!

Things feel different when you buy something and you actually own it. You take it home or it gets delivered to your door. And then no statement comes at the end of the month asking for money. You already paid. How much more fun will that vacation be when you get home and no bill comes later.

Time for you to decide.

Do I want to be free or do I want to continue to be a slave to debt?

Do you want the banks to own you or do you want to be free?

Life is very different without debt. You decide.

Let me know in the comments below if this was helpful or if you would like to know more. Tell us about your progress.