As we prepare to celebrate our country’s Independence Day this weekend, why not take a few minutes to figure out your financial independence day? If you have any debt other than a reasonable mortgage, that’s the day when you will be completely out of that debt. If the only debt you have is a mortgage, that’s the day you’ll be completely out of all debt.
There are two key steps here. First, running some numbers on my Accelerated Debt Payoff Calculator. And second, working your plan.
Running the numbers
This step should only take about 30 minutes at the most. Enter the details of your debts, starting with your lowest balance debt. The calculator assumes that when your first debt is paid off, you will roll the full amount you were paying on that debt into your next lowest-balance debt.
Do you see the box below the 10th row, the one where it says, “Enter a monthly dollar amount you can add to your debt payoff plan”? This is where you can run some helpful what-if scenarios. Try entering $25 the first time through. The calculator assumes you’ll add that amount to your lowest balance debt (so be sure to do that!). Then try $50 or $75 or more.
The calculator also assumes you’ll do something else that’s incredibly helpful—that you’ll fix your payments. You see, if you go no further into debt on a particular credit card and make the minimum payments that are required each month, your required minimum payment will decline each month. That isn’t kindness on the part of the credit card company; it’s math. Your minimum required payment is based on your balance, and if your balance is declining a little each month, that means your minimum payment will decline a little as well.
It declines by such a small amount that most people don’t even notice. They get hooked into this declining payment amount and that’s what keeps them in debt for just about forever. Fixing your payments on the amount you paid this month will dramatically speed up the process of getting out of debt. So, add whatever you can to the smallest balance debt and be sure to fix your payments on all the rest.
Run enough scenarios to figure it out—your financial independence day. Set a goal for the extra amount you’ll come up with to accelerate the payoff of all your debts. Stretch yourself, but also make it doable. Then see what the calculator says about how long that’ll take you to finish your plan and figure out from there what that date will be—the month and year of your financial independence.
Working your plan
Of course, this is the hard part. Hopefully, running some numbers to see how much more quickly you’ll be out of debt will serve as a motivator. Then, and I know this is easier said than done, you just have to see the process of getting out of debt as something of a machine. Get it up and running. Get the flywheel turning. Hit the numbers each month — that fixed minimum plus something extra toward the lowest balance debt, and fixed payments on all the rest. When one debt is wiped out, roll the full amount into the next lowest balance debt, and keep going. Get some accountability. Get some small wins. Eventually, you’ll feel it. Momentum!
Then one day you’ll make your last payment and that will be one sweet day. Believe me. Having worked this process for about four and a half years to wipe out $20,000 of debt, I know what it feels like to hit that number each month, month after month. And I know what it feels like to make that final payment.
Your city may not shoot off fireworks in your honor, but my guess is that your annual financial independence day celebration will be one that you enjoy for many years to come.
What questions do you have about getting out of debt?
Comments are closed.