Steps to Eliminate or Reduce Debt

An analogy to a person having financial difficulties would be a person who had a heart attack and asks the doctor for a shot or medication that will make him well immediately.  To resolve this health problem, the heart attack victim must go through a change in lifestyle and a rehabilitation program.  To resolve financial problems, you must be willing to change your lifestyle and go through a financial rehabilitation program.  Below are steps to take to get out of debt or reduce your debt.

1.  Write down all the principal balances of each debt you have, beginning with the lowest balance to the highest.

2.  Write down the current monthly payment next to each principal balance.

3.  Review your current  spending habits (financial lifestyle) for changes that could be eliminated  or reduced.  This review could include purchases such as magazines, soft drinks, bottled water, alcoholic beverages, tobacco products, memberships, eating out, grocery purchases (start using coupons), travel habits, etc.  I know that this is not going to be fun, but if you are going to reach your goal of reducing or eliminating debt, lifestyle changes must be made.

4.  Cancel all credit cards except one card with a low available balance.  Retain this card only because there are some purchases  which can only be made with a credit or debit card (hotels, rental cars, etc.)  Use this card only in those situations and pay the balance in full when the 1st payment is due.

5.  Of the money saved from step 3, above, add that amount to the current payment being made on the lowest principal balance listed in step 1 above.  Continue the increased payments until the principal balance is paid in full.

6.  Now doesn’t it feel really good to have one debt paid off?  Next move to the next lowest principal balance and add the previous revised payment to the current payment and continue the revised payment schedule until this principal balance is paid in full.

7.  Ok, this has to be exciting when this second debt is paid off, so continue the process of paying off the next lowest principal balance and adding the revised payment to the current payment until you have reached your goal of being totally debt free.

The reason we use the lowest balance first instead of the balance with the highest interest rate is so we can see progress being made and not become discouraged and quit trying.

Life is about setting priorities.  You can become debt free.  When you have accomplished this, you will be able to MAKE MONEY YOUR SERVANT INSTEAD OF MONEY BEING YOUR MASTER.

78 thoughts on “Steps to Eliminate or Reduce Debt

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