Warning: The ideas and methods i’m about to share with you have been used by thousands of Americans to get out of debt.
This plan will change your life if you act on every principle with precision. You might think somehow your life is different from everyone else reading this. You would be wrong. This is written for you and this plan will work for you if you give it all you got.
Once you get out of debt and can afford to pay cash for all the things you want or need. You will find out you have alot more purchasing power. Without paying the interest on credit cards most of you will find out you make alot more money than you ever thought. Some things in life are worth doing and getting out of debt is one of them.
Step 1. Decide to execute and follow through with this plan.
This plan is worthless unless you act on it. As soon as you’re done reading this you have to decide if you’re going to give up and file bankruptcy or stay in debt forever. How about you follow my plan that has worked for thousands?
Step 2. Fill out a financial score card for the past 90 days and keep score from this point forward.
Sit down with your spouse other and gather all the bills. List all your bills in an excel file. List them in order from lowest amount owed to highest amount owed. This is the order your going to pay them off. If they are a fixed monthly bill like gas, electric, phone, etc put them in a separate excel file or a few lines down. Pull out your bank statements and make sure you haven’t forgotten anything. Pull a credit report to make sure these numbers match.
Figure out for the past 3 months to your best of your abilities where every penny you spent went. Figure out how much money you have made in each month. Then from there separate all your bills/debts into categories… Mortgage/rent, insurance, car payments, car insurance, electricity, gas, oil, water/sewer, phone, cable, satellite, internet, home supplies, maintenance, improvements, groceries, clothing, dry cleaning, eating out, movies, barber/salon, student loans, credit cards#1 #2 #3 etc, child care, and you get the idea. It is important to know where every penny goes each month.
Step 3. Use your talents to generate more money and cut the fat.
In order to get out of debt you must be able to pay more than your minimums plus some extra to start a snowball effect. Some of you might have to get a 2nd or 3rd job if you can’t cut enough things. You can also start a small business or figure out other ways to make money. Such as babysitting or selling quilts. What talents do you have in life that you could use to earn some money.
I’m not suggesting you start a high risk business. It costs almost nothing for you to start baby sitting or giving piano lessons. I suggest being aggressive but starting small in your area of expertise.
Now this comes at no secret that you’ve got to cut back in order to get ahead. There is no magic pill for getting out of debt except for hard work. Look at your budget and question every single item in detail. Do you need it? Can you give up a car, tv, internet, eating out? When is the last time you have called around to see if you can save money on your insurance? You have to do whatever it takes to be able to pay your minimum balances + some extra. Call up your cable tv / internet and ask them for a lower rate or a promotional rate. Learn to drive less aggressively and save a few miles per gallon. Every penny you save adds up.
The more you can cut back the faster you can pay your bills the quicker you can get out of debt. You can take 5 years to get out of debt if you want or you can try to do it in less than 18 months(minus the mortgage for most). You really need to have a change of heart of your thinking. What is more important to you? This is the one of the toughest steps. No, you don’t need to eat out for lunch everyday. You can take a sack lunch. Maybe you don’t need a cell phone after all. Its time to make some sacrifices.
Step 4. Use the envelope system.
OK, so you have a list of all your expenses for the past 90 days. You looked over and were shocked on a few items. You figured out a way to cut back on some things. Now look at each category that you listed and figure out how much per paycheck you are going to spend in each category. Now when you get your pay check, cash it and put the money in an envelope for each category.
Do you have car insurance due each 6 months? Or taxes… You need to figure out how much per pay period need to be put in each envelope. Plan on going on vacation? That needs an envelope. Plan on buying a new appliance or car? That needs an envelope. From this day forward pay for everything out of the envelopes. Make sure you have figured out all any yearly expenses and estimated maintenance expenses.
Figure out your budget at the beginning of each month. See how you did the previous month and adjust accordingly. It will take at least 3 months to get this system down. Do not ever think about cheating. If you drive to town to buy groceries and you forget your envelope you must drive home and get it. You should get mad at yourself for forgetting and that you cost yourself gas money on a wasted trip. If you cheat you will never learn. DO NOT EVER SPEND MONEY WITHOUT THE PROPER ENVELOPE. Put your receipts in your envelope and write on the envelope what you purchased and when. This will help in figuring out budget for the following month(s).
Every Sunday hold a meeting in your household. Go over all the bills that are do that week. Make sure you pay them when they are due. Some of you are going to find out if you can just pay your bills on time you are going to save hundreds of dollars a month. At that rate you are going to easily get out of debt in no time.
Notice: There is no where in my plan that says you should pay anything with a credit card. Thats because you shouldn’t use credit cards. They are not worth it. You want to go on vacation more often? Want those miles? They’re not worth the risk. Instead use cash, get out of debt and save enough to go on all the vacations you want. If you have to mail a bill. Keep the exact amount in your bank account. Know that you can’t touch it because that money is already allocated for use. Remember, no cheating.
Step 5. Start your pay down plan
The snowball method for paying off your debts is by far the most effective way to pay down your debt. For those of you unfamiliar with this plan. You pay the minimum on every bill then you take a everything else and apply it towards the bill which you owe the smallest amount on. After that bill is paid off. You take your set amount plus the minimum payment that you had on the first bill and pay down your next debt with lowest owed.
Some argue that the best way is to pay down your bills with paying the highest interest rate bill first. There is solid reasoning and circumstances where they would be correct. Figure things out by paying off the lowest balance debt first. See how long it takes you to pay off your debt. Figure out how much quicker you would get out of debt. If you figured out a way to save/make an extra $500 a month ask yourself if it would be worth it to get a 2nd job. Then figure out how long it would take you to pay off your bills with the highest interest rate first. Then 2nd highest interest rate. etc. How much time would you cut off if you had an extra $500 a month?
Is there one or two bills that have an insane interest rate on it that you need to get out of the way before you switch back and pay the bill with the lowest balance first? Do you need to pay off 3 bills really quickly using the pay the lowest amount owed method then pay off a high interest rate one then move back to paying off the bill with the lowest amount owed?
What are your savings by each method? If things are too confusing and complicated. Just pay off your bills from the lowest amount owed to the highest. You need to stay motivated. Sometimes you just need some momentum that is provided in the system of paying off your bills with the lowest balanced owed first.
Step 6. Stay On Track and recover quickly when life happens.
Just remember each and every month you should pay the exact same amount towards your debts. If you pay $2000 this month on your debts you should pay out at least $2000 a month until everything is paid off. On your monthly expenses cut back as much as you can. If there is extra saved in your monthly expenses add it to your snowball amount that month but don’t be afraid to reward yourself for doing better than your goal.
Don’t even think about falling off track and spending $100-200 less a month in your snowball payment once you reach any level. It will be tempting. Keep going until you’re finished. Do not also acquire more debt. Its easy to sabotage your months of hard work in one foolish month.
There are going to be times when your car breaks down or your heater breaks in your house or something else in life happens. This is why we recommend you save up at least $1k before you start snowballing your debts away. Make sure to put it in an account that you can get to the money in 24-48 hrs. Stocks ,options, & cd’s are not a good spot for this money to be. You need quick access. A normal savings account or in an envelope stored somewhere safely will do just fine. Only spend it when you need to. Not when you want something. When your “life happens” budget drops below $1,000 stop your debt snowball until you get your “life happens” budget back up to at least $1,000. You will find out when you have $1,000 saved up for emergencies that when the emergencies come. They are just small speed bumps in life and no longer emergencies.
Step 7. I have paid off all my debt except my house. What should I do?
Once all your debts are paid off besides your mortgage we suggest moving “life happens” budget amount up to 9 months of living expenses. If you lose your job from this point on. You are now covered up to nine months. You don’t have to worry about falling back into the trap of debt. This shouldn’t take very long. Your budget is trimmed & your only debt is a mortgage.
From this point on in your life you must always pay cash for everything. Never finance anything. If you need a new car. Save up and buy a new car cash.
Step 8. Use your brain.
Never do anything financially that you don’t fully understand. Figure out all the consequences. Ignore what everyone tells you that is positive about what they’re telling you to do. Take it with a grain of salt. Each decision you make in life is your responsibility. Don’t trust ideas that don’t make sense.