CHANGE 12: PAY A SMALL DEBT THE CHANGE: If you have debt, and aren’t already on a serious plan to pay it o, get started by paying a small debt. WHY: Debt can be crippling if it overwhelms you and eats up your income with payments owed and high interest. It can be limiting, stopping you from doing what you want to do. It can be hugely stressful. One of the best changes I’ve made is learning to spend less than I earn, which seems like such a basic concept except so few of us do it. Paying o my debt (something that took 2 years to do) and staying debt-free has made me so much freer, so much less worried about finances. However, it can be overwhelming to tackle a large amount of debt — I personally avoided it because of this feeling of dread. So we’ll tackle it in baby steps. HOW: 1. On Day 1, simply start a list of all your debts. Don’t worry about the amounts — just things you owe money on. Don’t worry about getting the list complete — just start. You might list your credit cards, auto loan(s), student loan(s), mortgage, medical debts, friends and family you owe, etc. 2. On Day 2, if you haven’t yet, finish the list. Start to look up the amounts and add them to the list. 3. On Day 3, finish looking up and writing down the amounts of the debt. If you can’t find an amount, make a guess. Now put the list in order, from smallest to largest. 4. On Day 4, pick the smallest debt. This is your first target. You’ll pay this debt first before worrying about the others. Pay the minimum you can pay on all other debts, including zero if you can avoid penalties. If you pay all your bills and the minimum on everything else, what’s the max you can pay on this first, small debt? Write down a number for now. 5. On Day 5, take a look at cutting back. If you don’t have any extra, take a look at your discretionary spending. Can you commit to spending less on eating out, going to the movies, shopping, buying clothes and gadgets, at least for now? Can you cancel one of your cell phone plans or drop to a lower plan for cell or Internet usage? Can you cancel subscriptions to cable TV, Netflix, magazines, online services you might be paying for? Alternatively, is there a way to earn additional money outside your job? Could you clean houses, mow lawns, pet sit, or perform some other valuable service? Find the extra cash, and commit to temporarily cutting back or eliminating while you’re paying off debt. 6. On Day 6, make a payment to the target debt. If you normally pay $25, and you’re committing to an extra $50 or $100 (or whatever), pay the extra amount today — online if possible, or in person if needed. Many banks have electronic bill pay services you can use, if the debt you’re paying doesn’t have a way to accept online payments. See if you can set up a recurring payment in the larger amount for your target debt, until the debt is paid off. 7. Rest on Day 7 8. Celebrate. (Not by buying something though!) Often a smaller debt can be paid off immediately (if you’ve cut back on stuff) or in a few months. However long it takes, once you’re done, take the entire amount you were paying on that target debt, and apply it to the next largest debt on your list. Example: You were paying $75/month on Debt 1 (and $100 on Debt 2), then paid Debt 1 off in 3 months … take the $75 from Debt 1 and apply it to Debt 9. So now you’ll be paying $175/month on Debt 10. Once Debt 2 is paid off, you’ll apply that $175 to whatever you’re paying on Debt 3, and so on. Also, don’t take on new debt if you can avoid it! Cut back on your spending so that you begin to live within your means.
Posted on: Mon, 01 Sep 2014 07:49:05 +0000