Create Your Own Ultimate Debt Elimination Plan
By David Berky
The method is simple. 1) Set a monthly amount. 2) Pay all
minimum amounts. 3) Pay extra money toward the debt with
the highest interest rate.
This method will ensure that you pay the least amount of
interest and repay your debts as soon as possible.
The trick to paying the least amount of interest possible is
to pay extra money toward the debt with the highest interest
rate. Obviously you want that debt paid off as soon as you
can. Each month it costs you the most.
The trick to paying off your debts in the least amount of
time is to set a fixed total amount to pay each month. The
trap many people fall into is that they only pay the minimum
payments. These minimum payments are designed to keep you
paying that high interest rate for as long as possible.
By paying a fixed total amount each month, as one debt is
paid off, you will have more money to pay towards another
debt. This is often called the "snow-ball" effect.
But first things first.
First, determine you ability to pay. If your total payments
are much more than you can afford, you are in trouble. You
may need to contact a non-profit credit counseling agency.
You can find them in your local phone book or online.
But be careful of companies that want an up front fee.
Check with your local Better Business Bureau for
Next you need to make a commitment to stop getting further
into debt. Cut up your extra credit cards or put them where
you cannot easily get them. If you are living a lifestyle
that depends on credit, you will soon dig a hole you cannot
easily climb out of.
Stop spending more than you make each month and don't count
on future bonuses, inheritances, refunds or other
non-dependable income to bail you out. If you make $2000 a
month you can only spend $2000 a month. Look for ways to
cut back and purchases you can postpone or do without.
Now, let's look at each step of your ultimate debt reduction
plan more closely.
First, determine how much you can afford to pay each month
toward your debts. At the minimum it should be the total of
all your minimum payments for the current month.
You may need to examine your spending for the last several
months. Find things you can eliminate or do without for a
while. Postpone purchases, cancel subscriptions. Anything
to free up more money to pay off your debts.
You may even want to postpone investing for awhile. Are
your investments beating that 18% you are paying on your
credit card? If not, a better investment would be to repay
Once you have your monthly debt repayment amount set, you
need to write down each monthly debt you are paying. Record
the creditor's name, the current balance, and the interest
rate. Then take a separate sheet of paper and reorder the
debts so that the debt with the highest interest rate is at
Now as each monthly bill comes in pay the minimum payment.
Subtract the minimum payment amount from your set monthly
total. After all the bills are paid for the month, take any
extra money left over and make another payment on the debt
at the top of your list.
You can make an additional payment this month or save the
money to add to next month's bill. But don't spend it!
As each debt is repaid, cross it off your list, but keep
paying the total monthly amount you set at the beginning.
This will accelerate your debt repayment and save you
hundreds or even thousands in interest charges.
The two keys to your ultimate debt elimination plan are to
1) stop getting further into debt and 2) set your monthly
debt repayment amount. The rest is easy. You will be debt
free before you know it!