Everyone wants to be debt free. The problem with debt elimination is figuring out where to start. The most important step is understanding your cash flow. Once you know what you have coming in and what needs to go out, you can create a debt repayment plan that can help you get out of debt quick.
Creating a debt payoff ladder
To do this, make a list of all of debts, putting them in order according to the balances due. List the smallest balances first.
Next, decide how much you can realistically afford to pay on all debt each month. Pay the minimums on all cards except for the first one on the list. That first debt will include that extra amount that you have determined you can afford to pay.
Use these payment amounts each month until that first debt is paid off. When the first debt is paid off, that money is then reallocated to the next debt on the list. This strategy continues until all of the debts are paid off. Our monthly payment amount should not change.
Although I am recommending making minimum payments on most of the cards, notice that there is one card that is getting more than the minimum. You have to do this to make progress.
Minimum payments don't work
If we only make our minimum payments on our credit cards, it can take us over 30 years to pay them off. This happens because our minimum payment is reduced every month so that we are only required to pay 2-3% of the balance. As the payment goes down, the majority of the monthly payment is going toward interest, and very little of the principal is being paid.
It takes more than 30 years without adding any more debt to the card. So, if we were to continue to use the card, it would take even longer to pay the card off.
Some people may recommend paying off debts with the highest interest rates first. That may save a little more money in the long run, but this strategy that I recommend is more motivating. By getting a small debt paid off, that is one less bill that we have to worry about. As our bills are reduced, we are able to see progress and may be more willing to continue.
The biggest step
The biggest step after creating this plan is making that determination to stick with it. Proverbs 21:5 says, "The plans of the diligent lead to profit as surely as haste leads to poverty." (NIV) If we are truly committed, and if we are willing to do what it takes to get out of debt, God will help us through. Often times, we already have what we need to get out of debt, and we just may not be aware.
God can multiply what we have and help us get out of debt. In 2 Kings 4:1-7, a widow was worried about her ability to pay her husband's debts. Creditors threatened to take her sons as slaves.
All she had was a little oil, but Elisha told her to pour the oil into as many jars as she could find. The oil filled every jar. Not only was there enough to pay off the creditors, but there was also enough for her and her sons to live on.
In the same way, we need to really look at what we have and how we are using it to see what we might be able to use to get ourselves out of debt as well.
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Ozeme J. Bonnette is a financial coach, speaker, and author of Get What Belongs to You: A Christian Guide to Managing Your Finances. Her focus is on increasing financial literacy among adults and youth around the U.S. She earned 3 Bachelor's degrees at Fresno State, and her MBA at UCLA's Anderson School. Her blog is
http://www.povertynorriches.com. Reach her at
ozeme@thechristianmoneycoach.com.
