No Credit Needed Debt Reduction Guide

Section One: Getting Started

Tools: pen / paper / calculator / most recent bank statements / loan documents / credit card statements

Calculate Total Starting Balance:

• List all of your debts - Create columns to list creditors, balances, due dates, minimum payments, and interest rates.
• Add up all balances - This amount is your total starting balance.

Determine Debt Reduction Method:

Now that you have your total starting balance, you no longer have ‘debts’, you have your ‘debt’. In other words, your new goal is to get rid of your entire starting balance, not just a part of it. With that in mind, there are two debt reduction methods that work really well - and they both share the same basic principals - making minimum payments to all accounts and making extra payments to one account at a time.

• If your goal is to pay the absolute lowest amount of interest, over the time that you are reducing your debt, list your debts by interest rates, starting with the highest interest rate first.
• If your goal is to rapidly reduce the number of accounts that have balances, list your debts by balances, starting with the lowest balance first.

It has been my experience, after writing about debt reduction for more than three years, that the latter method seems to work best for most people, especially when they first get started. I used this method, commonly referred to as the ‘debt snowball’ and it worked very well for me.

Begin To Make Extra Payments:

1. Make minimum payments to all accounts on your list. Be sure that all payments arrive on time. Never miss a minimum payment, our you will have to pay penalties and late fees - and, your creditor may raise your interest rate.
2. Send an extra payment to the first account on your list. While you may choose to simply add this extra payment to your minimum payment, and write one check, I prefer to send two checks, one for the minimum payment and one marked ‘apply to principal’. If you use free online bill pay from your bank, sending two ‘checks’ should be a relatively simple thing to do.
3. Continue repeating steps 1 and 2 until you have paid off the fist account on your list.

Roll Payments Into Next Account:

And now we come to the most important step in the debt reduction process. Now that the first account on your list has been paid off - you have some ‘freed up money‘ - the minimum and the extra that you had been sending to the first account.

1. Continue to make minimum payments to all remaining accounts.
2. Send the ‘freed up money’ - the old minimum plus the old extra - that you had been sending to the first account - and send it to the second account on your list.
3. Continue repeating steps 1 and 2 until you have paid off the second account on your list, then repeat for the third account, the fourth account, etc. until you are completely debt free. Remember, once an account has been eliminated, take the total amount you had been sending to that account - the minimum plus the extra - and send that amount to the next account on the list.

By repeating this process - eliminating an account balance and rolling payments to the next account - you can and will rapidly reduce your debt. Remember, your goal is to eliminate your entire total starting balance.

Thank you for reading the No Credit Needed Debt Reduction Guide.

You have been reading Section One: Getting Started.

Please bookmark this page or subscribe to the No Credit Needed RSS Feed to insure that you receive all sections:

Section One: Getting Started

Section Two: Moving Beyond The Basics

Section Three: Preparing For Freedom

Section Four: Staying The Course

Section Five: Planning For The Future