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Debt
Elimination: The ACE Way will show you how to use
your ACE of Spades to dig you out of the debt hole. How to use your ACE of Clubs
to knock down debt. How to create your ACE if you are in the hole. How to
accumulate your ACE of diamonds.
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Debt
Elimination
First rule in digging yourself out of debt is to "STOP BORROWING". You
will forever be in a debt cycle if you borrow- pay-borrow-pay-borrow. In order
to get out of debt borrowing must come to a halt! What about a debt
consolidation loan? Consolidating your debt to lower your interest rate and/or
create some breathing room is great as long as you have a plan to eliminate
debt. A debt consolidation loan without a clear plan to free yourself of
debt can put you in a deeper hole than you were in prior to consolidating your
loans. Many people mistakenly believe that when they consolidate their debt,
they have paid off the loans that were consolidated. They develop a false belief
that since those other bills are paid off, they now have the freedom and
discipline to start using those credit cards again. The truth of the matter is
all you did was shift debt from one loan to another loan. Your balances on
various debts were not reduced. Therefore consolidating your debt and continuing
to create other debt by using those credit cards you just consolidated will
simply create more debt than what you had prior to the loan consolidation.
Second rule of digging yourself out of debt. Bills that are not the target
of your ACE of clubs should receive at least the minimum payment each month.
Credit card companies are known for setting the minimum payment at 1-3 percent
of the outstanding balance. Therefore, as you make payments, you will notice a
small reduction in your balance and a small reduction in your minimum payment.
If you continue to follow the pattern of the declining minimum payment, you will
more than likely pay on that credit card for 20 plus years and pay thousands of
dollars in interest. I recommend that you figure out 3 percent of your current
balance on your credit cards and set that as your minimum payment despite what
your credit card minimum payment suggest. This method will reduce both the
number of years to pay off the credit card and the total interest you will pay
on the credit card. For example, if you had a credit card balance of $3,000,
your minimum payment will be $90 ($3,000 x .03%). Continue to pay the $90 until
your ACE of Clubs has target this particular bill. If 3% is a bit much, just
ensure that the minimum payment established by the credit card Company is enough
to cover the interest for that month and slightly reduce your balance.
Third rule of digging yourself out of debt is to use a cash-base spending plan.
Retailers know that when a person uses credit to purchase items, they are likely
to spend up to 30% more on products and services. This is why they are willing
to pay the credit card vendor up to 6% of the transaction amount.
Our goal is to create a falling card, falling domino effect. In order to do this
we want to get a clear picture of your over all expenses. List all of your
credit cards, loans, and household expenses. For a week or so carry a pocketsize
notebook so that you can track the various purchases throughout the week. You
will be surprised how much unaccounted for money we spend on a daily basis.
After you have listed all of your debts and have tracked your spending
throughout the week, you have a clear picture of where your money is going.
Review your checkbook to ensure you did not miss anything. Are there any areas
that you can reduce? For instance, grocery bills, dining out, long distance,
unplanned purchases, bank fees, late payment fees, lawn maintenance etc. "A
dollar saved is a dollar earned."
Having enough income to pay your monthly debts and household expenses is the
only way you will get out of debt. Think of ways to increase your income.
Can you get overtime on current job? When are you due for your annual merit
increase? Apply for a higher paying job. Consider a garage sale. If you are
receiving $2,500 or more on your tax returns, consider modifying your W4 form
with your employer. Perhaps receiving this money throughout the year will help
you. Take on a part-time job. Do some side work, like babysitting or lawn
maintenance. Turn your HOBBY into a HUSTLE! (See my articles). Can you think of
other ways to reduce expenses?
You added up your expenses and your income. You looked for ways to reduce your
expenses and increase your income. You know how much of a surplus (extra money)
you have. Are you ready to RUMBLE? You are about to engage in a fight with the
bully who has kept you up at night, have you scared to answer your phone, and
have you scared to open up your mail. The culprit name is Debt. This Debt
culprit has a 96% winning record. Therefore I want to give you a weapon to fight
him with, the ACE of Clubs. Let me show you how to properly use this ACE of
Clubs. It is important that you focus your ACE of Clubs on one debt at a time.
It is also important that you that you prioritize your debt and focus on the
debt with the least amount of time to payoff first. But conventional wisdom
suggests that you pay off the highest interest rate debt first? When you are up
against a culprit with a 96% winning record. It is important that you get some
early victories so that you can build confidence and strength in your ACE of
Clubs. Which yields a higher rate of return to the Credit Card Company, 19% on a
zero balance credit card or 6% on a credit card with a balance of $3,000? The
answer is 6% on a balance of $3,000 yields a higher return to the Credit Card
Company. Our goal is to get you debt free. As a result we focus on
which method will free you the fastest.
List all your debts. Capture the name of the creditor, the balance, and the
payment amount. We are not concerned about the rate because we are prioritizing
based on the least amount of time to payoff. Lets assume you have an installment
loan with a balance of $7,000 and a payment of $150. An auto loan with a
balance of $10,000 and a payment of $450. A credit card balance of $5,000
with a payment of $100. In order to tabulate which account has the least amount
of time to pay back. You want to divide the balance by the payment amount. This
will give you an approximate time to payoff. (Balance / monthly payment =
approximate time) The item with the least amount of time to payoff will be the
first victim of the ACE of clubs, than the next and so on.
Now that you have prioritized your debts and you have identified the first
victim of your ACE of Clubs, it is time to swing. The best defense is a good
offence. You have to get aggressive with this bully. You have to hit this bully
with what I refer to, an "Aggressive Payment". You want to strengthen
your ACE of clubs with your surplus cash before we turn you loose Bam-Bam. For
example: You have a surplus (extra money) of $300 per month. This surplus is
your "Aggressive Payment". You add that $300 to your $450 payment
toward priority # 1, the Auto Loan. Adding your $300 to your $450 gives you a
monthly payment amount of $750. Initially it would have taken you approximately
22- months to pay off priority # 1, your auto loan. By adding the extra $300
payment it will take 13- months with the added ammunition of cash to your ACE of
clubs. Fast-forward to 13-months. The auto loan is paid off. Therefore you now
have $750 to strengthen your ACE of clubs (money freed due to payoff of auto
loan). The next victim of your ACE of clubs is the installment loan. In addition
to paying the $150 per month that you were paying, you can add $750 per month
for a total payment of $900. Initially it would have taken you approximately
46-months to pay off priority # 2, your installment loan. By adding the extra
$750 payment it will now take you approximately 7 months. This is the strategy
you want to continue until your debts are paid off.
Congratulations! You beat down your bully. I see you got your swagger back. The
journey continues. Now that you are debt free you can began to comfortably focus
on investing for your children college education and your retirement. Building
an emergency fund that equals 3-6 months is a piece of cake now that you no
longer have all of those debts.