The day you pay off the last of your debt will be one of the most important in your life. Hopefully, your children and grandchildren will never have to have this experience because they will learn and live the principles of financial fitness based on your example, and as a result, they will never go into debt. However, if you are in debt, I can tell you from personal experience that the day you pay it off will be a great memory. There were tears of joy, lots of shouting, and of course many prayers of thanks.
But exactly how do you get out of debt? The answer is simple. In fact, if you were already living some of the principles we’ve discussed, it will actually be pretty straightforward. If not, and you can’t stop spending or live on a budget, then getting out of debt will be very difficult, if not impossible, for you.
Here’s how it works. First, even if you have debt, you still pay yourself 10% of your income, but no more than this amount (PRINCIPLE 1). Paying yourself first and paying tithes and offerings (PRINCIPLE 6) teach you discipline, and discipline is needed to put money away, to deny yourself, and to live within your means. Also, you don’t increase your debt because you don’t use consumer debt anymore-AT ALL. That is the first step.
Second, PAY off your consumer debt, especially credit cards. The interest on cards is high, and paying them off is essential.
PRINCIPLE 33: Use the roll-down method to pay off all credit card debts and then apply it to all other debts.*
The idea of the debt roll-down method is simple: List your cards in order from smallest balance to the largest. If there’s a choice between two low-balance cards, pay off the one with the highest interest first. The goal is to get rid of the clutter of all the smallest payments and kill off the easiest debts first. Decide on a fixed percentage or amount of money that you’re able to add every month to your minimum debt payments and make this as automatic as possible.
NOTE: If you are saving money in a targeted savings account for a specific plan to purchase, you may want to stop putting money there for a few months in order to help pay off these cards. Also, if you receive any windfalls of cash or unexpected income, add it to the lowest balance card. Sell things from the garage or storage, or other things that you don’t need. The goal is to knock out the balance on the card as quickly as possible.
Third, once you have paid off the first card, keep the same amount going to the card with the next lowest balance. Give this a similar focus and pay off this card as soon as possible. To be clear, every time you pay off a card, you add what you were paying on that card to the next card payment. So, as you pay off a debt and roll down the payment to the next one, you pick up momentum. Continue to do the same with each card until all of your credit card debt is gone. At that point, apply the same roll-down method to your other debts, starting with those that have the highest interest rates.
The chart below shows an example of a monthly payment schedule with the debt roll-down method.
Even though this seems a bit overwhelming, it is actually quite simple. If you need help, let us know – the Beautiful Mrs. Jasper and I are here to help. And take if from us… debt free is worth the effort!
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