60 Seconds to Debt-Free Living
Picture yourself debt-free — no more bouts of anxiety over mounting credit card balances, no more slavery to your debt, and no chance of threats from the dreaded collection agency. You can do it! Here’s the scoop — in one minute flat.
0:60 Resolve to spend less than you make
Make it a habit as fundamental as stopping for red lights. Realize once and for all that if you can’t pay for it today then you can’t afford it.
0:55 Distinguish between Bad Debt and OK Debt
OK Debt has an interest rate well under 10% — preferably with some tax advantages to boot. In the best case, the thing you bought with borrowed funds will appreciate in value. Home mortgages and student loans are examples of OK Debt. Automobile loans are on the borderline: They often satisfy the low-rate piece, but automobiles almost never appreciate in value. Bad Debt is everything else — from your titanium credit card to the 35% loan from Larry’s Kwik Kash.
0:50 Pick a winner
Pick the one major credit card that features the lowest annual interest rate. Cut up your other cards, including all department store cards, into lots and lots of little pieces. (If you have plenty of ventilation, you can try to set the plastic shards on fire.) Resolve to use the one card left intact for emergencies only.
0:41 Gather the latest bills from all Bad Debt accounts
Line these up on the kitchen table. Find the minimum monthly payment for each account and then add these up to get an overall monthly minimum. Pledge to pay this overall minimum PLUS a hefty additional chunk every month — enough to make a solid dent in the outstanding balance of at least one account. If you can’t pull this off, you’ll have to make a drastic move to increase your income or lower your expenses. It’s harsh, we know, but it’s also an inescapable fact.
0:34 Pick the highest interest rate account and attack! Lather, rinse, repeat
Next, order the latest bills according to annual interest rate charged. Apply the “hefty additional chunk” (beyond the minimum) to the highest rate account(s). Repeat monthly until the last Bad Debt account is paid in full.
0:26 Ask for a lower rate
Grab a bill from any account charging you more than 14% interest. Dial the toll-free number on the bill and ask to have your rate lowered to 11%. Tell them that you’d really like to stay with them out of customer loyalty (embellish according to your acting skills), but that you have received offers for much-lower-rate cards. Expect to be made very uncomfortable, but stand firm and remember that, to them, you are both a customer and a profit center. You also stand to save a bundle. The more calls you make, the more persuasive you’ll get.
0:18 Be prudent
Be aggressive in paying down Bad Debt, but don’t get so ambitious that you risk missing minimum payments on your mortgage, automobile, or any other secured credit account. (Secured means that if you miss enough payments, the bank can show up and take your stuff.)
0:05 Dance, Fool!
You’re done when the Bad Debt is 100% exorcised and you can make remaining OK Debt payments with ease, leaving plenty of budget room for savings.