DEBT REDUCTION Strategies
Credit card debts are the most cunning adversary to securing your financial future. Unfortunately, many college students obtain credit cards while still in school. Credit card companies use enticing promotions to lure consumers by increasing credit limits and offering pre-approval. All of these strategies attempt to install the habit of spending now and paying later.
Many people don't realize how destructive this habit is, until their credit card payments become the largest part of their monthly budget. Credit card debt, as a percentage of income, has been on the rise for the past two decades. It may be difficult to break the habit of using credit cards; however, the reward is worth the effort.
I have did some research and found two ways in which one could eliminate all these "killer debts". The information came from two books that I have read and credit should be given to the authors for these methods. If any of the authors are not agreeable to allowing the information written by them to be included here, please drop me a mail and I shall remove them immediately.
METHOD 1- Debt Reduction Pyramid
The Debt Reduction Pyramid was taken from Andrew LaPointe's Book: How to Survive the Retirement Crisis of the 21st Century - What to do Now!
A debt-reduction strategy called The Debt Reduction Pyramid. will enable you to completely pay off your credit card balances.
The Debt Reduction Pyramid is designed to help you pay off your balances quickly and painlessly. This strategy is the same as if you tear down a pyramid. If you did this, where would you start? The most logical place is the tip, since the foundation is so enormous. You would begin at the top, removing one brick at a time until the entire pyramid is torn down. Thus, you will pay off your balances, one payment at a time. There are four simple steps to follow. These steps include:
STEP ONE:
The first step of this strategy involves writing down all outstanding credit card balances in ascending order (smallest to largest). This is referred to as the Debt Pyramid.
STEP TWO:
The second step of the strategy is to concentrate on completely paying off the lowest balance. By paying off the lowest credit card balance, the top of the debt pyramid is eliminated. In addition to the minimum monthly requirement, you should pay as much as possible over and above the minimum. For example, if the minimum monthly payment is $40 on the smallest balance, a check could be written for $75. ($40 minimum required plus an additional $35) Pay this extra amount every month until the entire balance of the first card is paid off.
STEP THREE:
Once the lowest card is completely paid off, concentrate on the second position. After the credit card balance at the tip of the pyramid is paid off, add the minimum monthly payment of the first card to the minimum monthly payment of the second smallest credit card. For example, if the minimum payment on the first position was $40 and the payment for the second card is $55, then your monthly payment to the second credit card would be $95 ($40 +$55 = $95). The benefit of using this step is that the minimum payments are already allocated into your budget. Thus, no additional money is reallocated to pay off outstanding debt.
STEP FOUR:
Continue using this strategy until all credit cards are completely paid off.
While you are following the Debt Elimination Pyramid to pay-off all of your outstanding debt, you should consider moving balances from high-interest credit cards to low-interest credit cards. This will not only reduce your payment, but it will help you get a handle on all of your outstanding debt.
METHOD 2 - Financial guru Robert Kiyosaki's credit card debt elimination method
Robert Kiyosaki's credit card debt elimination method was taken from Robert Kiyosaki's book: The CashFlow Quadrant, Page 208.
The following are some simple and ready-to-apply tips for reducing and eliminating your personal debt.
Tip 1: If you have credit cards with outstanding balances…
1. Cut up all your credit cards, except for 1 or 2.
2. Any new charges you add to the 1 or 2 cards you now have must be paid off every month. Do not incur any further long-term debt.
Tip 2: Come up with $150-$200 extra per month. Now that you are becoming more and more financially literate this should be relatively month then your chances for financial freedom may only be a pipe dream.
Tip 3: Apply the additional $150-$200 to your monthly payment of ONLY ONE of your credit cards. You will now pay the minimum PLUS the $150-$200 on that one credit card.
Pay only the minimum amount due on all other credit cards. Often people try to pay a little extra each month on all their cards, but those cards surprisingly never get paid off.
Tip 4: Once the first card is paid off, then apply the total amount you were paying each month on that card to your next credit card. You are now paying the minimum amount due on the second card PLUS the total monthly payment you were paying on your first credit card.
Continue this process with all your credit cards and other consumer credit such as store charges, etc. with each debt you pay off, apply the full amount you were paying on that debt to the minimum payment of your next debt. As you pay off each debt, the monthly amount you are paying on the next debt will escalate.
Tip 5: Once all your credit cards and other consumer debt is paid off, now continue the procedure with your car and house payments.
If you follow this procedure you will be amazed at the shortened amount of time it takes for you to be completely debt-free. Most people can be debt-free within 5 to 7 years. Rich Dad always said to make your money work for you.
Tip 6: now that you are completely debt-free, take the monthly amount you were paying on your last debt, and put that money towards investments. Build your asset column. Buy Real Estate. Learn from the greats such as Robert Allen, Dolf Deroos and Robert Kiyosaki.
That’s how simple it is.
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