Eliminating Debt - What had worked for me

Alrighty, here we go. Clearing out our debts is the first step to creating our wealth. This is getting us from a negative to a 0, then we can start working on our financial freedom and moving towards the positive.

Many of us lose sleep thinking about how to pay off all our debts. We have the intention to pay them off, but often think to ourselves, "I have so much debt!" and then get paralyzed. We end us coasting along and praying that the debts will just magically disappear.

Unfortunately, it doesn't happen this way.

First, we need to really decide that we WANT to clear out our debts. We need to psyche ourselves that WE CAN DO THIS. Many of the things that need to be done to creating wealth is attitude and the determination to achieve. This has to be in place first and foremost. This will help us bend over backwards and make sacrifices to achieve our goal (here, it is eliminating debt -- but this attitude thing is really applicable to ANY situation).

If you think you can't do it alone, seek help. Many people will be happy to rally you to success! Family and friends are there, but of course there are always benefits to professional help.

There are many financial planners/advisors who are willing to help. Of course they will also want to sell you insurance (hi, guys!!), but if you are clear to them that you are not yet in that state (you will be later on though to secure your wealth), they then can bring out their calculators and help you find a plan to pay off your debts. (Then remember them when you're ready to purchase a life insurance plan -- more on this later!!).

If you want to get on it yourself, my suggestion is (and this has worked for me) to first list down all your sources of debt (e.g. a number of credit cards, bank loans, Friends & Family loans). We need to take stock of exactly how much we owe and from whom. This way, it is clear to us how big (or small!) the problem really is.

Once we have this listed out, we need to identify how much MINIMUM we need to pay each month. We also need to look at the money we set aside for paying these debts and look into our expenses to see if we can cut back on some purchases to make this amount bigger (more of this later!!). The amount of money we have need to cover AT LEAST all the minimum payments combined.

F&F LOANS: Family and friends need you to pay them your debt, more for your own integrity and their trust in you than interest. Be frank with them and tell them your goal of eliminating all your debts and ask if it is possible to pay them a minimum amount each month OR to slide the payments due to future months. If they agree, Hallelujah!!! You can use the money to pay off higher interest debts first. But if not and if they need the money as well (it is THEIR money, don't forget), then please pay this off first. Remember that these people lent you money because they trusted your word. So do not destroy that trust.

BANK LOANS: If you have bank loans (car loan, housing loan, etc.), the interest is normally paid upfront even before you received the money, so the monthly installments will remain the same until you "graduate" and won't really benefit you if you pay faster. So here, just pay the monthly installment due.

CREDIT CARDS: First, stop using your credit cards. Use cash. Up until you've paid off your credit card debts and able to pay billings IN FULL.

Here, we need to pay off the minimum on ALL our debts on the list EXCEPT the one with the highest interest (let's name it Card A). We pay there as much money as we can. Let me repeat, AS MUCH MONEY AS WE CAN. Why?! Because not all debts are created equal. Those with the higher interest are the ones that bleed us dry faster. So we want to tackle this one first.

Once we finish paying of Card A, let's get all the money we used to pay on it and ADD it to the minimum amount for the next highest interest card (let's call this Card B) and continue paying the minimum on the other cards. Continue this process until you have paid off ALL. :)

Sounds simple? Why, yes!!! The answers to life's biggest questions are normally the simplest. The problem here is, IT TAKES A LOT OF DISCIPLINE. Which is why I go back to how important attitude here is.

Not to worry, once you see that you are succeeding, your confidence will grow and you will feel fulfilled that you are able to do this worthwhile work. And this will help you keep going!