Free at Last! A Simple Debt Elimination Plan
Our debt load is often the cause of the majority of our financial anxiety. One thing that should be made clear: there is no good debt. Mortgages are sometimes portrayed as a “good debt,” because interest is tax deductible and you gain equity over time. Mortgages, however, are 15 − 30 years, sometimes even 40 years. On a 30 year mortgage there's the rule of 23/7. The way interest works in mortgage makes it so, with most mortgages, it takes 23 years to pay the first half of the loan, but 7 to pay the final half. Also, the interest may be tax deductible on your primary residence today, but almost never on an investment property. Besides, do you want to trust that the interest payments will always be tax deductible?
There are many debt reduction companies, but few are worth your time or money, and many can hurt your credit.
Your credit reports are important to follow - they frequently contain wrong information that's hurting your credit score, but you can get those for free. Each of the three national credit reporting agencies are required by law under The Fair Credit Reporting Act, to provide you with a free copy of your report once a year. A handy strategy is to get your free report from one agency, say Experian, then four months later get it from Equifax, four months later from TransUnion, then four months later repeat the cycle.
The simplest way to access your free credit report is online at www.annualcreditreport.com, but the FTC also provides a toll free number as well as a request for with mailing address at www.consumer.ftc.gov/articles/0155-free-credit-reports.
A simple strategy to eliminating debt is what some people call debt stacking, some call a debt snowball, some call debt dominoes, and others have other names.
Do you add a little bit of extra money to any or all of your debt payments, e.g. an extra $10 on one credit card, $5 on another, $20 on the car payment, etc.?
1. Take all those little extras and apply them only to whatever payment is the smallest, and only make the minimum payment on the rest. It's okay if you're not making any extra payment on any of your debts. We still begin with the your smallest payment.
2. Focus on that payment and and get it payed off.
3. When the debt is paid off, take what you're used to paying on that debt and use the money to make an additional principal payment on your next debt, and so on until you're debt free.
The bonus: when you're debt free, you can use the money you're already used to not seeing or spending and add it to your retirement account, emergency funds, goals and dreams, etc.
If you're looking at a loan, or if you already have a loan, you can use our mortgage & loan calculator below to see when you're going to be paid off, how much you'll pay in interest, etc.
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