Tip 2 – Taking the Quick Wins
This month we are looking at four steps to get out of debt. As I’ve mentioned, if debt is not an issue in your life, please consider who you could help by sharing this blog.
Today we are looking at taking the quick wins. As a reminder, here is the example that we started with.
- $153 owed on credit card 1 at 19.99%
- $1,500 owed on line of credit 1 at 15.14%
- $1,530 owed to the government at 4.00%
- $8,398 owed on credit card 2 at 19.99%
- $8,400 owed on line of credit 2 at 9.95%
- $9,094 owed on credit card 3 at 19.99%
Yesterday, we reorganized some of the debt to reduce the average interest rate and ended with this:
- $0 owed on credit card 1 at 19.99%
- $5,000 owed on line of credit 1 at 15.14%
- $1,530 owed to the government at 4.00%
- $3,451 owed on credit card 2 at 19.99%
- $10,000 owed on line of credit 2 at 9.95%
- $9,094 owed on credit card 3 at 19.99%
What I didn’t talk about yesterday is why I recommended reducing the specific credit card bills that we did.
The reasoning falls back to the mental side of paying off debts. As we look at the three credit cards, they all have the same interest rate. So it doesn’t matter which is paid off first from an interest standpoint. But helping her reduce her debt payments from 6 to 5 does give her a tangible example of her debt going away.
So we decided to pay off credit card 1 in its entirety.
The recommendation of reducing the next lowest balance (credit card 2) is from the same mindset. When that debt is paid off completely, it will reduce her monthly payments again which will help her visualize the debt disappearing.
If you have been struggling with debt for a long time, eliminating your debt becomes just as much a mental battle as it is a physical battle.