5 Simple Steps To Making Your “Get Out Of Debt” Resolution Stick - Part 2
January 6, 2009
Have you started putting your “get out of debt” plan together yet? It might be 6 days into January, but it’s not too late to make a New Years resolution to get your debt paid off.
In the first part of this series, we looked at why it’s important to have a plan for getting your debt paid off - not just making a resolution that you have no idea how you’re going to keep.
In part two, we’re going to look at exactly how you can go about creating that plan. So let’s get started…
The key to coming up with an effective plan is to have as much information as possible at your disposal.
Let me ask you this - do you know how much debt you’ve currently got? I don’t mean down to the penny, but do you have a pretty good idea of what you’re faced with here?
Believe it or not, most people don’t really know how much debt they actually have. Some people don’t want to know because it’s too depressing. Others have just never really taken inventory of their finances.
If you don’t know how much debt you’re faced with, it doesn’t matter why you don’t know - you’re going to have to figure it out and face whatever consequences you might have.
The first step to creating your plan is to take stock of your debt. Figure out how much you actually owe, including:
- All your credit card balances
- Any consumer debt such as department store credit cards or stuff you’ve bought on any kind of payment plan
- What you owe on your car(s)
- The balance on your mortgage
- etc…
Add it all up and you’ll know exactly how much debt you’ve got.
Now the next step is to figure out roughly how long it’s going to take you to pay it off. Take the total debt outstanding and divide it by the amount you can afford to pay towards it every month. The number you get is how many months it’s going to take to get it paid off (very roughly, but this will give you a good idea).
Now keep in mind that this is all your debt, including car payments, mortgages and so on. If you make regular payments on these every month, include those amounts in how much you can pay off every month.
eg. If you have $100,000 in total debt owed and you can afford to pay $1,000 a month, it’s going to take you roughly 100 months, or a little over 8 years to pay it off.
I realize this doesn’t take interest and other charges into account, but we’re just looking for a rough estimate here.
Once you have that number, you’ve got the first step taken care of - you have a realistic timeframe for getting out of debt.
In the next step, we’re going to look at some ways to modify your plan to shorten the length of time it will take you to be debt free - sometimes by a LOT.
Stay tuned for part 3 in the next couple of days.
In case you’re coming into this series in the middle, here are the links to the rest of the steps:
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