Like any large undertaking or goal in life you need a plan. A pilot would never take an airplane from Miami, Florida to London, England without a specific plan in place to get there. Neither should you go ahead in life without having goals and plans – especially if you have a goal of financial freedom in mind.
If you’re in debt currently, debt didn’t just happen to you overnight. It was a process that took time and involved specific action steps which eventually resulted in the debt you’re now facing. Just like how you got into debt is the way you’re going to get out of debt – with a specific process.
One of the most important steps for you to take in order to overcome your debt is to organize all of your debts together in a pile. This means grab all of your loan paperwork, mortgages, credit card bills and any other debt which must get paid. Take a look at that pile and realize this is what is keeping you from a future of financial independence – and removing this pile of debts from your life is your key towards achieving that future.
Take all your debts, write a detailed account of them, and find out which debt to pay off first. The way you will do this is by creating a form for yourself with the following information from each of the debts that need to be paid – this will be your Debt Destruction Technique (DDT):
Name of Debt: This is the entity that you owe this money to.
Balance Total: This is exactly what you owe total for that particular debt.
Minimum Monthly Payment: This is the minimum amount that needs to be paid for this debt per month.
Payment to Debt Ratio: You get this number by dividing the Balance Total of the debt by the Minimum Monthly Payment. For example, if the Balance Total is $6,000 and the Minimum Monthly Payment is $500, then the Payment to Debt Ratio for this debt is 8.33.
Debt Importance: You get this number after you complete the above 4 steps for each of your debts. The Payment to Debt Ratio will guide you in selecting the Debt Importance for each of your debts. The higher the Payment to Debt Ratio the lower the Debt Importance and the lower the Payment Debt Ratio the higher the Debt Importance. You number each debt 1, 2, 3… until you have a Debt Importance for each debt you have. The debt with the lowest Payment Debt Ratio among all of your debts is number one in Debt Importance for you.
Start paying off your debts, starting with the debt with the #1 Debt Importance. Remember The 10% Debt Reduction Plan? In that article we talked about saving 10% of our gross monthly income and using that as our financial bodyguard. Now we’re going to put that money into action. Take that financial bodyguard money and add that to the minimum monthly payment of your debt with the highest Debt Importance. Make the minimum monthly payments on all of your other debts – do not create any other debts. Keep this process going – moving down to the next Debt Importance debt as you pay each off – and you will free yourself from your debts. Don’t let yourself be worried too much with the interest rate of each account. The Debt Destruction Technique will eliminate debt so quickly for you that the interest rate won’t matter as much as it does for those people who constantly just make minimum payments each month. The way the Debt Destruction Technique works is by using positive momentum in your favor – you see your debts disappear so fast that you get pumped and want to keep it going.
Once you’ve paid off your debts, take that 10% of your gross monthly income and invest this money. Whether you’re looking to start real estate investing, stocks, or some other investment, this will be key to reaching true financial freedom. Free yourself from your liabilities and gain assets. Don’t work for money; let money work for you!
Do you remember the old pesticide DDT (Dichloro-Diphenyl-Trichloroethane)? It was a chemical used in the second half of World War II to control the mosquito population that was spreading malaria and lice transmitting typhus. The use of DDT, helped dramatically reduce the incidence of both cases. DDT was later found to be too powerful, affecting other wildlife. But our DDT, the Debt Destruction Technique, will be purely focused on obliterating your debt – resulting in absolute freedom.
The truth is that people in what seems like hopeless debt situations are basically giving away money. If you’re paying $3000 a month in debt payments, you’re losing that money. It’s cash that’s going to be gone for eternity – all to pay for stuff that we think we need. I’ve seen people lose thousands of dollars in a matter of minutes at the casino, pay hundreds of dollars in bills for alcoholic drinks at nightclubs in South Beach, and overreach themselves by purchasing homes and cars that they truly cannot afford. But they do these things because they think they need to do these things – whether due to peer pressure, lack of financial education, or poor spending habits.
When doing this plan of using 10% of your gross monthly income and applying it to your highest Debt Importance debt you’re going to feel good when you finish off a debt. Real good. In fact, you may even be tempted to use that cash to treat yourself to something nice, because you know, you paid off a debt and why not? Resist the temptation! Do something else to reward yourself – maybe taking a trip to the beach, going to the museum, take a nice walk, etc. In the Debt Destruction Technique you must use your 10% and apply it towards your debt each and every month until all of your debts are paid off. Then you take this cash and apply it for investing purposes. You need to understand that the only way you can have the freedom and security of financial independence is by paying off all of your debt. This is the only way to escape the vicious downward spiral of the debt cycle.
By paying your debts using the Debt Destruction Technique, you’re taking money that you’ve pledged to your creditors and debtors and eventually you’ll have this money back, available for investments that will take you to financial freedom! Instead of wasting this money on bills and interest, you’ll be able to invest in your future. With the power of real estate investing and compound interest, there’s no doubt you’ll eventually have the opportunity to become net worth millionaires and more – you just need sound strategy and sensible discipline. Think about that – people can go from the brink of bankruptcy or beyond all the way to becoming multi-millionaires. The path is simple – it just takes desire and discipline, but it can be done!