Monday, 24 April 2017

Realistic, Thorough and Effective Debt Busting





My, my ..... the topic of debt reduction is just oozing out of me lately. Well, let's juice that orange while it's still there.

If this post quietly and anonymously changes just one person's life, then it was worthwhile writing it down.

I have had quite a while to mull over the best approach to debt busting for recovering consumerists (of which I am one). In all truthfulness, the way to approach debt reduction would begin quite differently if we were on a bare-bones income compare to the both of us working - but I have thought about both scenarios and am ready to 'sprout forth' on the subject some more.


Steamed greens and almonds


This method works for the bulk of scenarios I reckon. So here goes:


Mr & Mrs HM's 20 x Effective Debt Busting Activities

Activity 1 - Be Honest Out Loud
Admit all debts to someone verbally....yep, even the $20 we owe Mum. Everything. The truth. If we are one half of a relationship, then it has to be the other person we tell. (This could be very scary - just do it)

Activity 2 - Check Our Ability to Pay
We must have the income to cover all minimum debt payments. If we are paying out more than we are earning then we are in an urgent crisis situation. Increasing our income immediately by getting a second stream of income is of the highest priority. Get this sorted first.

Activity 3 - Create Surplus Quickly
This means sorting a realistic budget that leaves us something left over after paying all basic living requirements and all minimum debt payments. Don't worry about the size of the surplus at this stage - as long as there is one and it is realistic.

Activity 4 - Automate Our Money
This requires us to set up our banking to automatically assign money out fortnightly (or whatever our pay cycle is) to all billing vendors and to all debts. Only pay minimum payment requirements via automation. All other bills like groceries and petrol (gas) pay cash for, or, use a completely separate non-credit card account.

Activity 5 - Save $500 Emergency Dollars
We do this using our surplus. We stick at it till there is $500 saved. Agree on what this can be spent on - be very strict here about what an emergency is. Do NOT jump this step (I know it is tempting) as it teaches us a multitude of things about ourselves.

Activity 6 - Ramp Up More Surplus
This is were we get creative by either finding other ways to earn a little more or spend a little less - or both. Even if we only squeeze out another few dollars/pounds for the weekly/fortnightly/monthly surplus, then that is OK.

Activity 7 - Document Debt
Document all our debts noting interest rate, debt amount and basic lender details. Using a pencil and envelope is perfectly fine to work this out. Nothing fancy required.

Activity 8 - Pay Off The Smallest Debt First
This will give us a sense of possibility and an early 'win'. Pay this debt off by paying the minimum payment plus our surplus. (This will be the only time we take this approach)

Activity 9 - Save Another $500 Emergency Dollars
This will give us $1000 in our emergency fund. We achieve this step by rolling up the minimum payment of our paid-off debt plus our surplus.

Activity 10 - Pay All Debts to Friends Next
Paying all debts owed to friends next allows us to regain our self respect and rebuild respect among our friend circle again. Let them know we will never hit them up for money ever again. We achieve this step by rolling up the minimum payment of our paid-off debt plus our surplus.

Activity 11 - Save Another $500 Emergency Dollars
This will now give us $1500 in our emergency fund. We achieve this step by rolling up ALL the minimum payments of our paid-off debts, plus our surplus.

Activity 12 - Pay All Debts to Family Next
Paying debts off to family is a psychologically powerful step - don't skip it. This will send a powerful message to our family members that we have got ourselves together and are acting as responsible adults. Equality will be restored once these debts are paid. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus

Activity 13 - Save Another $500 Emergency Dollars
This will now give us $2000 in our emergency fund. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 14 - Pay Highest Interest Rate Debt next
This is the fastest way to now tackle all remaining debt once we have experienced the early win of Activity 8 and regained our self esteem with Activities 10 & 12. This is the business end of our debt busting war. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 15 - Save Another $500 Emergency Dollars
This will now give us $2500 in our emergency fund. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 16 - Pay Second-Highest Interest Rate Debt next
We are on a roll now. We have served our apprenticeship and this is serious stuff. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 17 - Pay All Debts In Descending Interest Rate Order next
...one by one. Bang, bang, bang. Take no prisoners, show no mercy. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 18 - Save Another $500 Emergency Dollars
This will now give us $3000 in our emergency fund. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 19 - Save $5000 Confidence Dollars 
...or more if we like. Whatever amount makes us feel safe and free. $5000 should cover a couple of months of modest expenses if the need arises and saves us from having to be reactionary if we ever loose our job or experience a significant life changing event. It 'stays put' in a high interest bearing account - hopefully we'll never have to touch it. Having this amount 'there' is our own insurance policy and safety net. It is quite separate to our emergency find. We achieve this step by rolling up ALL the previous minimum payments of our paid-off debts, plus our surplus.

Activity 20 - Manage Your Surplus Wealth
Now we have ALL the previous minimum payments of our paid-off debts plus our surplus rolling in relentlessly every pay-cycle to build our wealth in whatever way we choose!  In many ways we have only just begun when we reach this vital step.
This activity is the true starting line. We were way behind the starting line previously.


Even a small stockpile is worthwhile


I know it is 20 activities (phew) ..... however I make zero apology for that.
I am confident that every step, in this specific order, is vitally important and necessary to not only pay down debt speedily but also to help cure our consumerist addictions.

Happy to chat in more detail via email or via comments below if you'd like some extra clarification.


Slicing soft soap



Take care folks and stay nice.

Mr HM





6 comments:

  1. It's obvious where your thoughts have been during your break LOL
    Good on you! Your enthusiasm is infectious :)

    ReplyDelete
  2. Thank you Phil, we really need this at present.

    ReplyDelete
  3. Sounds like a good plan. Where do put the mortgage? It might take a long time to pay and delay some of the savings steps... I was lucky and taught not to get into debt, so we only have the mortgage and working hard to pay that off asap.

    ReplyDelete
    Replies
    1. The mortgage is usually the cheapest of our debts as far as interest rate goes, so probably is one of the last to be paid under activity 17. However if family has gone in with us to lend us part of the mortgage, then this part of the mortgage would have to be paid under the 12th Activity

      Delete
  4. This! This! This is how to do it. This works! I did this, and although there are another 40 steps after and possibly five years more, if the target is some kind of financial independence, THIS is how to start. This is how I did it too so I know it works!

    ReplyDelete
    Replies
    1. Thank you Onevikinggirl. I've also just followed your blog...it enthralled me instantly. So unique.

      Delete

Related Posts Plugin for WordPress, Blogger...