When it comes to laundry I’m the first to admit I’m not an expert. Truth be told, I’m not even skilled in this area! But I am aware of the concept of sorting laundry and am somewhat familiar with the reasons why one would make an effort, even if I am happy to leave the task to magically happen without my attention or effort. Fortunately for me, (and the public I meet), dirty laundry quickly becomes clean laundry that is nicely folded and waiting for me in the drawer or cupboard. My ignorance and laziness haven’t had massive negative consequences. But there are other matters that do require attention as they tend to bite hard when left ignored.
This leads me to address a question I was asked via an Internet forum recently and it’s similar to sorting dirty laundry. This person asked me “How do you classify debts in terms of manageable, bad, worse, worst – how can I determine how to prioritise debt repayment?” What I love about this question is how it has the answer woven into it already. Different debts need different attention and specific action in order to remedy the problem. Hey, that’s kind of like the laundry, isn’t it?
Debt that carries an extremely high interest rate must be dealt with as fast as possible by all means available – it is priority one. Apply significant effort to these “stains” and remove them as fast as you can. Extra elbow grease will not be wasted in attending to these dirty items.
A second thought to direct you in prioritising your debt is to look at the term remaining. I personally teach a “Snowball” system that helps people to repay debt quickly. The key to success with this system is to identify the debt you can pay off the fastest and to do so with great haste. Once that debt is repaid apply the payment from the first debt to the next target, thus increasing your payments. This is the snowball growing. When the second debt is gone apply the payments from the first two debts to the third target, the snowball grows again and is giving you substantial momentum in eradicating your debts.
Isn’t it interesting how often the answer we seek is found in the questions we ask. My wise mentor taught me “the quality of the question determines the quality of the outcome”, and it’s so true in this instance.
Attacking our debt successfully requires us to classify each one first, as mentioned in the question. This is sorting the dirty laundry into piles so you know what you are facing and can determine an appropriate course of action for each. Secondly, prioritising the debt will help you to achieve success more effectively and efficiently. Snowballing your payments applies extra elbow grease to the stains meaning they disappear quickly.
Alas, my laundry skills have not improved nor has my motivation. And that is the key, my friends to your financial success. Your motivation.