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A 5 Step Strategy for Getting Out of Debt
By JLP | January 19, 2006
As promised in my review of The Millionaire Maker
Step 1. Create a Debt Elimination Box
Gather up all your debt statements (credit cards, charge accounts, high-interest loans that are not against an asset, and any other outstanding credit or liabilities). For each debt make a list with the following information:
1. Name of the creditor
2. Amount owed
3. Minimum monthly payment
4. Interest rate
Step 2. Calculate the Factoring Number
Simply divide the amount owed by the minimum monthly payment to get the factoring number. So, if you owed $3,000 on a credit card and your monthly payment was $120, your factor for that card would be 25 (3,000/120). Do this calculation for each of your debts.
Step 3. Create a Priority Payoff Box
Arrange your debts in order of their factoring number from smallest to biggest. The debt at the top is your first priority.
Step 4. The Jump-Start Allocation
Loral suggests that you find $200 extra per month (in addition to your current minimum payments) to use to pay off debts. For some people this is easier said than done. However, even if it means giving up cable TV and your cell phone, your number one priority should be to get out of debt. You can always get cable TV and your cell phone back after you are debt free.
Step 5. Debt Payments
Add the extra $200 to the minimum payment of the first debt listed in your priority list. Then, once that card is paid off, apply that minimum payment PLUS the $200 to the next card and get it paid off. Keep this up until all your debts are paid off.
There you have it. It seems very similar to Dave Ramsey’s “snowball” plan.
Topics: Credit Cards |