Now you have an organized chart detailing your current debt situation. You can easily see your monthly minimum payments. All you have to do now to begin reducing your debt is to add as much extra money, per month, as you can to the account with the lowest balance. In our example below, the lowest balance has a minimum payment of 25 dollars. You have an extra 75 dollars available for debt reduction, this month. Pay your minimums for all of your accounts, and the pay that extra 75 dollars towards you lowest balance account. Focusing all of your extra debt-reduction monies towards a single account will result if FOCUS. You will see your balance for that account shrinking, in many cases dramatically, and you will be encouraged and enthused. The reason that most people stop trying to get out of debt is that they try to pay a little bit extra each month across multiple accounts. They “see” very little progress, they get discouraged, and they quit. This particular style of debt reduction allows you to “see” progress every single month. Remember, part of personal finance is the psychology involved in dealing with money, debt, and savings. There is a psychological “boost” that you receive when you see principal dropping and balances going away. Next Step: When to move to the next account… (up soon).
|Debt Reduction Master Sheet|
|Account||Balance||Rate||Minimum Payment||Maximum Payment|
|ABC Charge Card||$500.00||11.99%||$25.00||$100.00|
|XYZ Charge Card||$1,000.00||12.05%||$50.00||$50.00|
|Zippe Auto Loan||$3,000.00||13.99%||$300.00||$300.00|
|Yippe Auto Loan||$12,000.00||0.00%||$500.00||$500.00|