Debt Reduction: How Do I Do It?
The math of debt reduction is actually
very simple. A sixth grader could do it. The emotions
need to be handled, too. Doing both will help you
stick to your debt reduction plan and become debt
free.
Let me show you the math. First, make
a list of all your creditors. Divide the page into
6 columns. The first column is Creditor. The second
column is Total Debt. The third column is Monthly
Payment. The fourth column is Ratio. The fifth column
is Priority. The sixth column is your Paid Off Date.
Fill in each column for each debt. In
the first column after the name of the Creditor, list
the total that you owe. In the next column, write
down your monthly payment. So far, so good.
Now, heres the math part: add up the
Total Debt column to get a total of what you owe.
Got it? Good. That was simple addition. One more simple
addition: add up the Monthly Payment amounts and get
a total of what youre paying per month.
Now, for the next column, divide each
debt amount by the monthly payment. That means if
you owe MasterCard $3,000 and the monthly payment
is $150, the math is 3000 divided by 150 or 16.7.
This number is your ratio. Simple division, right?
See? So far, any sixth grader could do this.
Okay, when you have the ratio, number
your debts from the lowest to the highest ratio. Simple
again. If two debts have the same ratio, put the one
with the lower total amount first. One more piece
of math, calculate 10% of the Total Monthly Payments.
Paying 10% more will get you out of debt much faster.
If you just cant do that, its okay. Follow the instructions
using a lower amount, but do pay extra on the debt
that is the first priority.
To do your own debt reduction and become
debt free, stop using your credit cards. Pay an extra
amount on the debt you numbered as first priority
(the one with the lowest ratio) every month until
it is paid off. When it is paid off, take the amount
you were paying on Debt #1 and add that to the payment
amount on Debt #2. When you pay off Debt #2, add that
entire amount to the payment on Debt #3. Keep going
until theyre all paid off!
Debt reduction from $150,000 to zero
can happen in as little as 2 years if you use this
plan. Along the way, you will want to learn to handle
the emotional aspects of spending and debt so that
you can stick to your plan. I recommend either Debtors
Anonymous, Debtorsanonymous.org or better yet, the Quantum Wealth class,
Quantumwealth.com. It is essential to your debt reduction
plan that you handle not just the math, but also the
emotions. Soon you will be debt free with your debt
reduction plan!
Molly Mettarod teaches high school math
and business classes. She feels it is important to
educate teenagers about debt before it becomes a problem.
On the weekends, she loves to go camping. You can
read more articles about debt reduction at Debt
Reduction Site
