Learn How To Get Out Of Debt
Does the process for how to get out of debt have you a bit confused
? If you use the debt stacking strategy, you'll discover that it's as difficult as you may imagine. In order to begin, gather up the following information...
Go find your credit card and other debt statements. First, list the names of each mortgage or car loan company and each credit card. After each name, write down your balances, minimum payments required and interest rates.
At the end of each line, write down any amount you may be paying extra (over the minimum payment required) for each debt. For example, if you have a MasterCard credit card that wants $75 a month from you, but you're paying $100 each time, write $25 at the end of that card's line.
If you are paying more than the minimum on two or more of your debts, add up the total of how much money you're paying extra (above and beyond the total of all your minimum payments added together).
The number you've identified is called the acceleration amount and it will play a vital role in getting you out of debt. If your minimum payments add up to $450 but you actually pay out $800 each month, your acceleration amount is $350. Even if you can free up as little as $25 for an acceleration amount, this plan will work.
Now write down each debt, starting with the smallest amount owed all the way up to the one with the biggest balance. You're going to start with the smallest debt first. Instead of paying more than the minimum on several credit cards at once, you're going to only pay extra on that first credit card. On all the credit cards, car loans and mortgage below that one, pay only the required minimums.
After the first credit card is paid off, take the full amount you used to pay on it (minimum plus the extra $50, $100, etc) and add that to the next debt on your list. When the second debt is paid, add the total you were paying on it to debt #3. Keep doing this until all your debt is gone.
Here's an example:
* Credit Card #1 has a balance of $2500 with a minimum payment of $65 * Credit Card #2 = $4500, Minimum Payment = $115 * On credit card three, they want $150 per month and the balance is $6000 * Credit Card #4 = $9500, Minimum Payment = $240 * Car Loan = $13,000, Payment = $450
In order to make this really clear, let's say that you've come up with $100 for your acceleration amount. This means that to start off on your plan for how to get out of debt, you're going to pay the first credit card $165 every month (the minimum of $65 plus $100 acceleration amount) and then pay only the minimums on the next 4 debts.
When the first card is all gone, you're going to take that $165 payment and now add it to the minimum of $115 required from credit card two. This means you'll now pay card #2 $280 each month. By the time you get to your car loan, you're paying your entire $1,120 debt budget to your car loan!
Are you realizing the power of this strategy as each debt is paid off? You're able to get out of debt that much faster by going after each new card with that new amount. It goes slow until you get the first couple paid off. Have patience and you'll be out of debt in no time.
by: Matt Zavadil.
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