How To Get Out Of Debt
There have been several ways I have read of how people can get out of debt. There has also been several ways I have witnessed people getting out of
debt and there has been the method I have personally used to get out of debt. I think it’s worth discussing all three because different methods work for different people.
The main way you read about and I have written about this myself is to write down all of your debts in order of interest rate cost and pay the debts off first with the highest interest rates. Another commonly written about method is the debt snowball. Where you only look at the size of the debt. Rank all your debts in order of size and pay off the small ones first then as you build confidence and momentum you pay off all the debts in a snowball rolling down the hill fashion. There’s actually entire books dedicated to this, and in my book I even explain which debts are likely to have the highest interest rates. Below is an extract of a table regarding the order of debt.
|TYPE OF DEBT||APPROXIMATE RISK PREMIUM||EXPLANATION|
|Mortgage||Cash rate plus 1%||
|Commercial Debt||Cash rate plus 1.7%||
|Secured Personal Loans||cash rate plus 2-3%||
|Unsecured Personal||cash rate plus 5%plus||
|Credit cards||0 to 22%||
The ways I have witnessed people getting out of debt was when I was assisting a videographer who was making a video for a charity that assisted people in severe financial difficulties they had free financial counseling and temporary housing and budget coaching until they learned how to budget for themselves. All their bills were negotiated until they were paid off. I will never forget one mans face when he said “being able to control your finances is better than having a Porsche” he said it was such a wonderful feeling
The method that has worked for me personally is to get all my debts written down and to work out the minimum payments and to pay more. That
way the debts got paid off. Most minimum payments are so low that if you just paid them the debt could last 25 years especially credit cards
If you double the minimum payment and then work things out it can often pay of the debt six times faster
Which ever way you choose to get rid of debt it’s a wonderful feeling when you succeed.
The even sweeter thing is you can save money to invest using the extra money you now have from not paying off debts that are now gone!