John Noce Coaching
Step by Step Plan to Get Out of Debt
Downtown Asheville - Photo by John Noce
Debt & Money LogoWelcome 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.

  1. Write down your debts from the lowest balances to the highest on credit cards, automobiles and other small loans.  Others suggest paying off the ones with higher interest first.  While there are benefits to this, I feel that the sooner you pay off a debt the more encouraged you will be to continue the program.  So let's set easy goals and get a bunch of small wins to keep motivated.

  2. Set a "fixed" minimum payment in your mind.  Your car payments are fixed so those are what they are...but your credit card payments go down each month as you may have noticed  This may help the budget, but it makes it so that you never pay off the balance.  If your minimum payment is $80 this month, I want you to pay $80 each month from now on until it's paid.  Ideally, do this for every card you carry which has a balance.  If it's too tight for you, just do it for the card you are focusing on right now...again...I suggest the one with the lowest balance.  

  3. Increase your income: This could be a second job, getting a raise at your current job or starting your own part time business (my recommendation).  You can actually have an online store up and running in minutes.  River Offers, is an Internet based home business that you can join for FREE. Another free way to make money (& save money since you're earning rebates) is the Blastoff Network.  To learn more about these, please visit my "Free Home Business" page.  Your whole role is in promoting your stores.   The extra money you earn will be extra money that you will apply on top of the regular payment of your smallest balance.  I can also show you 20 Ways to Earn $100 per Day.  I know they work, because I personally do 12 of the 20.  The great thing about the first 3 is that they are free.  Just promote your business to anyone and everyone you know.   If you happen to give up, can't sell, or experience some other situation where you do not make extra money with these businesses, you have lost nothing.  Since the businesses are free, you have no money invested.  You will still have extra money from the savings you've found via the discounted products and services that you can apply toward your debt.

    I actually have an e-book that I've put together with my A.W.A.R.D. Program.  

  4. Reduce your expenses using the services in your new free business.   This is not required, but assuming the prices are lower than what you pay now, why wouldn't you do it and save money?  This is called Replacement Buying.  The extra money you save will be extra money you can apply on top of the regular payment of your smallest balance. If you don't want to take advantage of the free business, at least save yourself some money every month. Click here to see numerous ways to save money every month.

  5. Repeat: Once the smallest bill is paid off, take everything you were paying on this account and apply it to the next balance each month.  In other words, if you had an $80 dollar payment and now that bill is gone, apply that $80 toward your next bill each month.  If you were adding extra to that payment, continue to that as well.
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 can now have it paid off in less than 2 years.

(Assumes $4,000 balance, 8% interest and 2% or $20 Min pymt)

Pay only the Minimum payment $,1720 8 yrs and 7 mos.
Pay fixed $80 Payment $882 5 yrs
Pay $80 plus $100 Extra $344 23 mos.

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.