How to Get Out of Debt in Four Steps

I bet a lot of you reading this are in debt.  The reason I know is because statistics show that about 40% of people (in the United States) spend more than they make.  Numbers aside, most of us haven’t gone a month without hearing someone complaining about having too little money.  The reason for most people’s financial woes is because they have too much bad debt.

Too many people have too much month at the end of the money.  The fact is, in many cases, most people can easily prevent this unfortunate predicament from happening.

That’s where I come in.  I’m going to show you how to keep more money in your pockets.  If you follow the plan below, you will end up with more money at the end of the month.  And if you do it long enough, you may even eventually end up with too much money at the end of the month!  Imagine that…

Before I show you how to get out of debt, first you’re going to need some money.  Then you’re going to need some debt and then some monthly payments.  We’ll go through it together.  So don’t worry.  Here is our financial situation.  It is overly simplified but will work for our purposes.

Income is $3500/month

We pay $1000/month in debt with a total debt balance of $29,000. 

We owe Visa, Master Card, American Express, and we have a car loan.

OK.  Let’s get debt free!  Here’s how to do it.

Step Zero:  Do NOT Get Into any more debt. 

Step One: List your debts in ascending order beginning with the lowest monthly payment

Notice how long it takes to pay these off with your current monthly payments.

Step Two: List your Income and Expenses

INCOME

EXPENSES

Step Three:  Determine Your Discretionary Income

Monthly Income – (Total Monthly Debt + Total Monthly Expenses) = Discretionary Income

$3500 – ($1000+$2000) = $500

This means that you have $500 Discretionary Income available every month.  Discretionary Income is money that is not obligated to debts or expenses.  It is money you don’t owe anyone.  It is YOUR MONEY.   (Read the Magic Number)

There are a number of things you can do with this money.  But for our purposes, you will invest $100, blow $100, and use $300 to be debt free.

Step Four:  Payoff Your Debts

Take a look at your list of debts from Step Two.  We are going to add your $300 towards debt freedom to the monthly payment of the card with the lowest balance.  So, you’ll add $300 each month to pay off your American Express card.  Now you’ll pay $400/month instead of just $100.  This will allow you to pay off the American Express card in 5 months instead of 20 months.  See below.

Once American Express is paid off you then apply the $400 you use to pay to American Express each month to the Visa card (the payment with the next lowest balance).  You’ll now pay $550 to the Visa card.  This will allow you to pay off Visa in about 5 months also.  See below.

Master Card, your next!  Now you’ll take the $550 you paid on Visa and add it to the $250 Master Card payment for a new total of $800.  You’ll end up paying off Master Card in 5 months.  See below.

How many of you would like to drive a Mercedes-Benz that’s paid for?  Well, here’s the last step to make that happen!  You’ll now add the $800 to the $500 car payment for a new total of $1300.  That chops that 40 month long car payment down to 15 months.

I bet the car drives a little smoother now, doesn’t it?!  You’re now completely DEBT FREE!  Take a look at Step One and you’ll see how far you’ve come.  You have basically increased your income by $1000 month.  Not bad!  Don’t forget, remember in Step Three you began investing $100/month.  So now you have at least $1,500 tucked away too.

Extra Step:  Save, Invest, Give, or Spend

The $1000 you use to owe the credit card companies and the car loan is now part of your discretionary income.  In Step Three your Discretionary Income was $500.  Now, it is $1500 ($1000 + $500).

How many of you would like another $1500 every month to do as you please?  I know I would!  It’s not Uncle Sam’s money.  It’s not Visa’s, American Express’, the Landlord’s, or the Utility Company’s…it’s ALL YOURS!!!  This is your light at the end of the tunnel.

So you can do as you wish: save it, invest it, give it, or spend it. 

If you would like to be debt free, get started on this plan immediately!  It will change the direction of you and your family’s future.

Still Not Convinced?  Here Are Some Side Effects of Getting Out of Debt

Less Complaining

Better Posture

Stronger Biceps

Greater Sex Drive

Promotes Hair Growth

Fresher Breath

Better Vocabulary

More Street Cred’

Increased Swagger