Smash Your Debt on Purpose

High amounts of expensive debt are crippling too many families. This makes me very uncomfortable as I have seen the negative effects at all extremes. One woman I spoke with recently told me “she was able to pay most of her bills.” Notice her use of words there, it’s implied that some bills remain unpaid. This is simply a case of too many debts and not enough money.

I was speaking at a seminar recently about how to smash your debt and received a high level of interest from the audience. Unfortunately, a large percentage of the audience was struggling under the burden of high interest debt. This includes credit cards, short-term loans and unpaid accounts with the tax department. The good news is you don’t have to stay under this heavy burden. With some planning and discipline you can get out of this burdensome situation.

There are three principles I teach when helping people to smash their debt.

The first one is simply reduce the interest cost immediately. You can do this through any number of offers being made at the moment by the mainstream banks. Many will accept a transfer balance and offer zero interest cost for a year. The reason you accept this offer is because it allows you to pay the debt down faster. All that money that was being gobbled up by high interest costs can now be allocated to reducing the balance. This first step gets you on the right path.

The second principle is called the snowball effect. When you’ve paid off the first debt you allocate the payment towards the second target. When that is clear you add both payments to the third target. By doing this you are “snowballing” the payments so you can eradicate your debt as fast as possible. You can even apply this to your mortgage, no matter how big it is.

The final principle sounds simple but is harder than you might think;

Stop collecting debt!

With disciplined behavior and determined focus on your financial goals you should now avoid debt all together. But there is always temptation to avoid and you will need to master your weakness to achieve this one! (There are some things I just can’t help you with!)

Don’t consider debt a permanent houseguest with your family; this is one you should choose to evict. Think of all the positive benefits you can enjoy from being free from the shackles of debt. Paying all your bills could be one, although not that exciting. What about the ability to save money for goals? What if you could enjoy more family time by having to work fewer hours? What if being debt free meant you could be more generous towards others?

There are many benefits to be discovered and I’d like to conclude by suggesting you first invest some time in discovering what they might be for you. When you have the right motivation in place smashing your debt is much easier.

(This article was originally published in Phil’s regular column in the Waikato Times newspaper.)