|John Noce Coaching
Step by Step Plan to Get Out of Debt
Welcome to my "Debt Strategy" section. Here, I will show you my step by step debt reduction plan which will save you hundreds, maybe thousands in interest charges. I'll also show you how to shave years off your mortgage payments.
The strategy I'm about to show you is similar to ones recommended by such books as Garrett Sutton's ABC's of Getting Out of Debt (part of the Rich Dad, Poor Dad series by Robert Kiyosaki), Carolyn White's Debt No More and Charles Givens' More, Wealth Without Risk. What's the difference between my plan and theirs? There are 2: The way you sort your debt and where to find the extra money. I call my approach the A.W.A.R.D. program: A Workable, Achievable Reduction of Debt. It's a very simple 5 step plan.
Let's say you've gone nuts. You've run up $4,000 on a credit card, bought a $25,000 car and a new $200,000 house. As it stands, it will be 30 years before you are debt free assuming you gather no additional debt. Your payments are $80 (CC) + $500 (car) + $1230 (P&I) for a total of $1810 per month in payments. This is a lot to swallow so let's break it into small achievable steps.
This month, your minimum payment on the credit card is probably $80 as stated above. Assuming 8% interest, next month your balance would be $3,946 and your minimum payment would be (2% x 3946) $78.93. As you can see, as your balance goes down, you pay less and less each month. This is why your credit card debt seems to stick around! To combat this, I want you to find extra money, and add that on top of your fixed payment. For example, let's say you can come up with an extra $100 per month to apply to your credit card debt. I want you to make your regular $80 payment plus add another $100 for a total payment of $180. Don't forget, the extra hundred comes from money you save by reducing expenses and from earnings from your new business.
Here's the effect. Rather than doing the same thing most people do and taking almost 9 years to do it...you can now have it paid off in less than 2 years.
(Assumes $4,000 balance, 8% interest and 2% or $20 Min pymt)
Once you've paid off this bill, take the $180 dollars you've been paying and add it to the payment on the car loan. Remember; it's a $25,000 car loan with 60 payments of $500. This second debt has now been paid down over the last 23 months at a fixed payment . Start applying the extra $180 to it each month and you will pay off your car 10 months sooner. When the car is paid off, start paying the $680 (500+180) to the next debt item. Basically, in 4 yrs and 2 months, you have paid off what should have taken you almost 9 yrs had you just paid the minimums. Imagine what $680 added to your mortgage will do for you?
A $200,000 mortgage over 30 years at 6.25% will cost you over $243,000 in interest alone! Assuming that it takes you 50 months to pay off your card and auto loan, let's say you then apply the $680 to your mortgage starting with the 51st payment. You would normally have 310 months left on your mortgage without extra payments. The added $680 per month allows you to have your house paid for in just 190 payments total versus the original 360. You only will pay $128,000 in interest saving you $115,000 and 14 years of payments.
Is this powerful or what? It won't be easy but if you can stick to it, you will see the results.