everyone has some type of debt that they would like to
reduce and get rid of. The problem is that most people
view their money emotionally instead of rationally, and
find it hard to stick to a debt reduction plan. I like to
use a debt reduction to help me reduce my debt in a
rational, goal oriented way. If you view your debt
rationally and stick to the debt reduction plan, you will
reduce your debt. Here is how you do
1 - The first thing we want to do is identify the
highest interest rate you are paying in your debts. So make
a list of all your debts and order them from the highest
interest rate to the lowest interest rate.
STEP 2 - Now you want to look at all of your
income and compare this to your debt. Do you have enough left
over to set aside each month to go toward paying your debts? Be
realistic about this amount and do not strap yourself each
month for necessities like gas and food.
STEP 3 - Specify what that amount of money
will be to go toward paying your debts each month.
STEP 4a - Once you have established the extra
amount of money you have left over each month, make the minimum
payment on all debts.
STEP 4b - List your debts from the lowest to
the highest balance, and apply your money toward paying off the
debt with the lowest balance first (shortest term) and then
moving up the list. This works really well if you have debts
with an equal or near equal interest rate.
STEP 5 - When you finish paying off the debt
with the shortest term, reassess the extra money you have
coming in each month and pay down the debt with the next
shortest term in the same manner. Continue using at least
the same amount of money for debt reduction. i.e. continue to
allocate the same amount of money towards debt reduction as in
STEP 6 - OPTIONALLY: You can list your debts
from the highest to the lowest interest rate, and apply your
money toward paying off the debt with the highest interest rate
first and then moving down the list.
NOTE: Using the plan above provides the
psychological boost of seeing your debts eliminated.
Paying off debts with the highest interest rates first save you
more money, however, if the interest rates are significantly