“font-family: Verdana;”>Most of us have made promises to do something better. Myhome office is still cluttered after I promised – as one of my 2011 New Year’s resolutions – to keep it tidy. It was clean for a while. Now it’s a hot mess again.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>But this is the year, right? This year, I’m going to keep my office uncluttered. Or maybe 2012 is the year you’re going to take that step to get rid of your debt. A couple in California, Felix and Sandy, wrote to me just before the end of December and requested that I be their accountability partner in getting rid of almost $49,000 in debt on three credit cards. I’ve agreed to help them keep to their promise to eliminate the debt by the end of the year.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>”I am a great fan of yours but a lousy applicator of your advice,” Felix wrote.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>”This new year though, my wife and I have a plan to pay down debt and wanted to give you our starting point and report back to you one year from now to give you our progress. We made some lousy decisions in the past, and so now we have to correct them.”
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>Here’s where they stand now:
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>– Visa Gold: $17,151.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>– Visa Platinum: $19,158.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>– American Express: $12,569.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>”Not pretty, I know, but we are determined this year to pay them off,” Felix said.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>There are a number of ways to pay down your debt. One way in particular I call the “Debt Dash Plan,” which I wrote about in my recent book, The Power to Prosper. It’s a way of paying off debts similar to running a 100-meter dash, a quick race. You start by attacking – and I mean ruthlessly – the debt with the lowest balance to get rid of it as soon as possible.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>I’ve found in working with individuals and couples that when they can knock off a bill quickly, it motivates them to press on and aggressively tackle their remaining debts.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>On the Debt Dash, you list your debts and then take any extra money you have – say, from reducing expenses or from a second job – and apply it to the debt with the lowest balance while making the minimum payments on the others. When you’ve paid off the first debt, apply the full payment amount from the first debt to the one with the next lowest balance, adding any extra money you can, until that one is paid off. You continue paying the debts this way until they are all gone.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”> Here are some additional tips for the Debt Dash:
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>– Don’t beat yourself up. Learn from the past, but move forward with hope. You can do this.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>– Don’t leave off any debts. Put all your debts on the list, except perhaps your mortgage.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>– It’s OK to ignore the interest rate. I know that some will criticize you for using this method of debt reduction. They will argue that it’s better to pay the debts with the higher interest rates first. Mathematically, it does make sense. But it ignores the psychological reasons people get into debt. Folks get energized when they’re able to quickly cross off a debt from their list. This, in turn, often helps them rush through their debt payoff and they don’t end up paying much more in interest than if they started with the debts that had the higher rates.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>– If two debts are about the same, the debt carrying the higher interest rate is attacked first.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>– Inform your creditor that your extra payments are to be put toward the principal and not counted as an extra payment. In fact, you might want to write a separate check aside from your regular payment.
“font-size: 9.0pt; font-family: Verdana; mso-fareast-font-family:”>I have a challenge for you. Don’t be a spectator. If you’ve got credit-card debt, join this couple on their debt dash and let me know how you’re doing.
