As you embark on the road to debt recovery, one of the first tasks you’ll need to complete is taking an inventory of all your debt and organizing it based on total balance owed, interest rates, and length of the loan. This will help you to prioritize which debts need to be paid first to save you the most money in the long run.
In general, here’s what you’ll need to do before you begin a debt acceleration program so you’ll be ready to attack the program with confidence and without creditors, the IRS or anyone else on your back:
- Keep essential loans and services current. If you’ve fallen behind on payments for car loans, utility bills or mortgage payments, these types of debts should be your first priority. If you miss too many of these types of payments, your creditor could decide to repossess your car, foreclose on your mortgage or turn off your utilities. Fortunately, there is a lower interest rate on these types of debts than most types of consumer debt, meaning the overall debt you owe won’t rack up as quickly as, say, credit card debt. Therefore, you should make the minimum payments to be able to keep your home, car and utilities while working on other obligations.
- Meet all of your legal requirements. You cannot escape your tax or child support obligations. These debts will almost certainly not be discharged if you file for bankruptcy. You can, however, work with a collection agency to devise a payment plan that will work with your financial situation. Otherwise, if you fall behind on child support or taxes, you could experience consequences such as wage garnishment, significantly higher interest rates or time in jail.
- Pay off deferred loans last. Once you’ve paid off most of your other debts, you can turn your attention to deferred loans. Student loans, for example, often allow you to put off payments if you’ve fallen on hard financial times. Such loans will still accrue interest, but their interest is relatively low, so it’s a good idea to save these debts until last.
Powering Down Your Debt
Once you’ve figured out how to meet all your legal obligations and pay for your necessities, it’s time to start knocking down your debt in a serious way — this is called Powering Down your debt. It is mathematically possible for anyone using Debt Power Down techniques to get out of ALL debt (mortgage included) in 10 years or less. It doesn’t matter how deep in debt you are, how much money you make or do not make, or how many loans you have. Anyone can get out of debt using these powerful acceleration techniques.
How does it work? Powering Down is accomplished by prioritizing all your debts (preferably using a debt calculation software, go here and then click on the “Start Now” button) based on the following three criteria:
- Highest to lowest interest rate.
- Shortest to longest maturity.
- Lowest to highest balance.
Usually, most people concentrate on paying off high interest rate loans such as credit cards first, and this probably makes good sense. But using a debt calculator, most people find the quickest way to get out of debt is usually by paying off debts with the shortest to longest maturity, especially if they have a mortgage). However, the only way to know this for your personal situation is to gather all your debts and put them into a software to see which of the three ways will provide you the quickest payoff.
Once you have created a prioritized list of your debts, you concentrate on paying off the first debt on that list (of course while still making the minimum payments on all your other debts) until that debt is paid in full. Then you will take the amount of money you were paying on that first debt and add it to the payment on the second debt on your list. This allows you to pay more on the second debt, thus decreasing the amount of time it will take to payoff the second debt. When this debt is paid in full, you will take that increased amount you were paying on the second debt and combine it with the third debt’s minimum payment, thus reducing the time it will take to pay off this debt, and so forth through your list of debts until you have paid all loans in full. In addition, you can add an “Accelerator” payment to these debts by creating a Spending Plan and then tracking that plan, which will find you extra money you did not know you were wasting that you can add to your Power Down payments, thus further adding to the amount you have to pay down on each debt.
This debt payoff technique is powerful! Don’t miss out on your opportunity to apply it. For more information on creating a Spending Plan and Debt Plan, with Power Down and Accelerator Payments integrated into them, contact the team at Money Mastery today. You could be out of ALL debt much quicker than you think and without needing any additional money other than what you are currently making.