Debt Elimination Strategies that work
Any one of these debt elimination plans will work if you work the plan:
- Debt Snowball: Pay extra on the debt with the smallest balance.
- Debt Avalanche: Pay extra on the debt with the highest interest rate.
- Risk Reduction: Pay extra on the debt with the most risk. This could be back taxes or a loan from your mother (you don’t want to risk the relationship, do you?)
Pros and cons:
- Debt Snowball: You pay more interest than the Debt Avalanche. However, getting a shot of QuickWin has been scientifically proven to keep people motivated to keep working the plan to the end.
- Debt Avalanche: You pay less interest overall. However, working on a 21% interest rate credit card for over a year tends to wear on a person’s psyche. We begin to believe the process doesn’t work and we quit.
- Risk Reduction: Taking care of IRS debt first eliminates the possibility of them garnishing your wages (no court process needed). Or you may decide to pay off your parents because the stress of the situation is eating away at you. These cases are not as common (most parents are a bit more forgiving than that) so the benefits aren’t as great as the Debt Snowball or Avalanche.
Arm yourself with reminders
When we were in debt I would get a punch in the gut every time a statement showed up in the mailbox. Constant reminders wear on us and we become more likely to quit.
It is important to stay focused and motivated in our moneyplan. We need to continue stretching every dollar and keep grasping at any opportunity to make more money to throw at our debt. Credit card companies benefit whenever we take our foot off the gas, so we must stick to the plan!
Arm yourself with tools to help keep you encouraged throughout the process. Smartphone apps like ReadyForZero send you reminders and encouraging messages. Progress thermometers on the refrigerator or bathroom mirror let you check in on your current status. Finding ways to pay attention will go a long way in your debt elimination process.
For example: I look at our mortgage balance a few times a month. Anytime I log onto our bank account to balance our checkbook, I see it. I look at our debt payoff spreadsheet once in a while, just to get my blood pumping. And, of course, I see the new balance at the first of every month after our payment is made. I’ve got my eye on the goal and focused on winning.
Above all else: DON’T QUIT
Evaluate your situation. Choose the method that works best for you. Above all things – DON’T QUIT! If you want to try one and then switch – go ahead. If the Debt Avalanche isn’t working for you then start attacking your smallest balance first. Everyone’s financial situation is different, so is their debt elimination strategy.
The bank has a plan for your money. It’s time to short-circuit that plan and start paying attention, not interest!
Also on this episode:
Holla From The Impala – It’s awesome to get paid
Congratulations to Rachel, winner of the Smart Money Smart Kids book giveaway
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