This is a repost that’s part of a series I did back in August 2009 when this blog was on Blogger.  I feel the info is just as relevant today as it was back then.

via Wikipedia

OK, I’m back from pt 2 of this series to continue my talk on the way I used “Debt Proof Living” by Mary Hunt.  Another one of her “tools” that I liked and used is what she calls the “RDRP-Rapid Debt Repayment Plan”. Other financial gurus call this “snowballing debt” or “debt snowball”. Debt snowballing is not anything new. Now, financial software such as Quicken and MS Money have this as part of their mid-range and/or deluxe offerings of the software. If you are trying to get out of debt this is well worth the extra $15-20 over the basic version if you are going to use this type of software for your finances. I think you can do this on spreadsheet programs too. This is a plan for you to get out of debt with the money that you are currently paying all your creditors but in a much faster way than following the traditional method of paying down debt. And best of all, you can DIY.  No, it’s not “voodoo economics” to borrow the term coined by George Bush Sr, nor is it “creative financing” or magic, but a plan that actually works. However, there is a catch. I’ll go into that later because it’s key to this plan working.

Basically you start off by listing all of your debts by name, APR (aka the interest rate, which is the additional money that you pay for the “privilege” of using their card/loan, or whatever for any one who does not know what that means), your payment amount and the balance owed. There are a 2 ways to do this plan. One gets you out of debt a little faster because you are paying less interest. The other is a tad slower but may provide you with an kick start to get your behind in gear because you’re seeing some immediate results. If that sounds confusing, hang in there with me and you’ll see what I mean.

Method 1) List all debts starting with the highest interest rate( APR), the next highest, all the way down to the lowest interest rate debt.

Method 2) List all debts starting with the debt that has the lowest payoff/balance, next lowest and on up to the highest balance.

You can find the APR listed in the printed material that is on your credit card bill or on the loan paperwork that you signed. Now there are debt calculators all over the internet if you don’t have financial software. I highly suggest you look these up and plug your numbers in. I’ll warn you though, when you see how much you’ll end up paying back if you pay back the way your creditors want you too… you may want to fix a really stiff cocktail.

Anyway, the higher the interest rate and the longer you take to pay it off, the more you’re gonna end up paying. That’s why Method #1 results in a faster payoff because you are paying off the highest interest rate loans first.

Method #2 is good if you need a little bit of encouragement, like that 1st 5 pounds that you lose when you’re on a diet. You’re so excited that you begin to think twice about that nice looking piece of chocolate cake. Alright, let me stop talkin’ about food before I have to go and find somethin’ to snack on, that I know I should not be eatin’. lol A lot of the time the smallest debt you have is one of the lower interest rate debts, though not always. Remember I said earlier, on the higher the interest rate loan, the longer you take to pay it off the more you end up paying.  It still results in years earlier payoff and big interest savings in that you will not have to pay it, just not as much as if you follow Method #1. Now I followed Method #1, including my mortgage at the bottom of the list as the last debt to be paid because I was determined not to pay the bankers one extra dime.

OK, now for the catch I mentioned earlier. You’ve got to follow these 3 rules very strict and to the letter unless it’s a dire emergency and I mean dire emergency. These are from the book and paraphrased leaving out one step as it’s already been done. That’s the listing of your debts.

1)NO NEW DEBT!!! Yes, I’m shouting but I want to make sure you hear me. You can’t get out of the hole you’ve dug for yourself if you keep making the hole deeper and at the same time you are shoveling more dirt on top.

2)Pay the same monthly payment regardless if the loan/credit card issuer says your minimum payment is less than it was the month before. Don’t fall for those “payment holidays” either. You know, right around Black Friday shopping day where they say “oh don’t worry about making that payment. Go Christmas, Easter( insert holiday of the month) shopping with that and you can start back paying next month”. Ignore them by saying thanks but no thanks. Keep making that payment. You can always pay over the amount but not less.

And last, but just as important as #1, & 2.

3) As each debt is paid in full, take that money and apply it to the next debt in line.

Example: Lets say you had JC Penny as your 1st debt @ $50 per month, Macy’s as your 2nd debt @$100 per month, Home Depot next @$150 per month and GMAC (your car note) last at $300. Doesn’t matter which method you are using in case you’re wondering. Make all the minimum required payments each month as listed. When you’ve paid off JC Penny’s debt you take that payment (the $50) and add it to the Macy’s payment of $100. So now instead of sending Macy’s $100 like you were before, you are now sending them $150 every month until it’s paid off. Then when you’ve paid off Macy’s (which you will have done at a much faster rate than you were before because you were sending $150 instead off $100), you add that $150 payment to the Home Depot payment. You are now sending Home Depot $300 per month. Before you know it you’ve paid off Home Depot.  Next, you take that $300 payment and add it to your car note so now you are sending GMAC $600. Before you know it, you’ve paid off your last debt. Just by diligently following those steps you’ll pay off your debts way ahead of schedule saving you lots of interest. If you get REAL SERIOUS by cutting your lifestyle to find extra $ in your current budget, you can make this happen even faster thereby saving you money that you would otherwise be paying out in interest. You can’t get ahead while filling out a check with somebody’s name on that line. That’s what you are doing by paying out interest.

Stay tuned for part 4...

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• Resources I Used On The Road To Being Debt Free pt 1 (ceraisis.net)
• Gettin Outta Debt Resources I Used To Become Debt Free (ceraisis.net)
• Gettin Outta Debt Resources I Used To Become Debt Free (ceraisis.net)