Financial Checklist Plan Part 2:
Eliminate Personal Debt
Credit Cards, Student Loans, Car Loans, Personal Loans - Everyone has them, don't they?
Chances are that you have some or all of the above debt. Debt is easy to come by, but keeping it doesn't have to be a way of life. More and more people are eliminating personal debt as a part of their Financial Checklist Plan. Best of all, accomplishing this is not rocket science. All it takes is:
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With Part 1 of the Financial Checklist Plan complete and an personal resolve to be debt free forever, you are ready to eliminate personal debt at an accelerated pace.
Eliminating debt requires two changes in financial practice. The first is overcome the psychological barriers that have kept us in debt and the second is to create a zero based budget every month and follow it repeatedly.
Change 1: Overcome the need for debt. We have all been conditioned to want things and to want them now. Immediate gratification and debt go hand in hand.
When we decided we need something (or more likely want something we pretend is a need), if we fulfill that need by purchasing that item with credit or a loan, we are in fact committing a part of our future income for the privilege of having that item now. In a way we are selling our future at an expensive cost (interest) so we can enjoy something what we cannot currently afford. This equation gets even more difficult when the thing we think we need and buy with credit is something that also goes down in value. Rarely do our "wants" go up in value and most often they go down in value quickly - sometimes to being worth almost nothing. Now we are selling our future at a high price for something that goes down in value. We're losing on both ends. We must now decide to overcome the psychology of the now and be willing to sacrifice a little now for a bigger return later.
Eliminating debt requires two changes in financial practice. The first is overcome the psychological barriers that have kept us in debt and the second is to create a zero based budget every month and follow it repeatedly.
Change 1: Overcome the need for debt. We have all been conditioned to want things and to want them now. Immediate gratification and debt go hand in hand.
When we decided we need something (or more likely want something we pretend is a need), if we fulfill that need by purchasing that item with credit or a loan, we are in fact committing a part of our future income for the privilege of having that item now. In a way we are selling our future at an expensive cost (interest) so we can enjoy something what we cannot currently afford. This equation gets even more difficult when the thing we think we need and buy with credit is something that also goes down in value. Rarely do our "wants" go up in value and most often they go down in value quickly - sometimes to being worth almost nothing. Now we are selling our future at a high price for something that goes down in value. We're losing on both ends. We must now decide to overcome the psychology of the now and be willing to sacrifice a little now for a bigger return later.
Change 2: Debt is often a result of poor financial practices. There are almost as many people who carry large amounts of personal debt as there are those who don't perform the simple practice of monthly budgeting. Debt and lack of restraint through budgeting go hand in hand.
To tackle our debt and not take on any new debt requires us to faithfully budget our finances. We advocate for a simple and proven strategy called zero based budgeting. This practice entails budgeting all our anticipated income for a month at a time so that all our money is spent (on paper) before the month starts and the income actually is earned. By doing so, we designate all our income and we know what we can afford and how much can start paying down of our personal debt.
Monthly Zero Based Budgeting is not hard or scary. It's actually very simple and incredibly empowering. To learn the basics, simply check out this short video:
To tackle our debt and not take on any new debt requires us to faithfully budget our finances. We advocate for a simple and proven strategy called zero based budgeting. This practice entails budgeting all our anticipated income for a month at a time so that all our money is spent (on paper) before the month starts and the income actually is earned. By doing so, we designate all our income and we know what we can afford and how much can start paying down of our personal debt.
Monthly Zero Based Budgeting is not hard or scary. It's actually very simple and incredibly empowering. To learn the basics, simply check out this short video:
With some budgeting skill in practice, paying down debt is a breeze. On your monthly zero based budget, list all your debts based on total amount due, from smallest total balance to largest. List beside them their minimum payments due. After you get to the bottom of your monthly zero based budget, if you have any money left undesignated, put all that money toward the amount due of your smallest balance. (Note: You may need to adjust your budget so you will have money left over - sacrifice may be needed to zap away your debt and own your future). Over the months ahead, when you pay off your smallest total balance bill, keep adding your prior payment from the paid off bill to the next minimum balance due on the next highest total balance. You'll gain victory after victory as you pay off debts at lightning speed. It is not unusual for individuals on the Financial Checklist Plan to pay off ALL personal debt in as little as 6 to 24 months.
There are a couple of notes we need to add here for your consideration.
First, make sure you arrange your debts based on smallest total balance to the largest. Don't worry about interest rates. Yes, some may be higher than others, but we need some psychological wins more than we need a mathematical analysis. If math calculations alone could get us out of debt we'd already be debt free. Clearly the psychology of debt needs some victories more than interest analysis.
Second, eliminate debt at a torrid pace. Don't take on any new debt and cut up your credit cards. They, along with your "need" for things you can't afford are keeping you buried in debt. Cut up your cards and force yourself to stop digging your hole of debt any deeper. There is light at the top and the sooner you pay off your debts, the brighter and brighter that light becomes.
Once you gain a foothold on eliminating your debt, it's time to analyze something incredibly important: Insurance. It's time to insure that we're properly Insured.
There are a couple of notes we need to add here for your consideration.
First, make sure you arrange your debts based on smallest total balance to the largest. Don't worry about interest rates. Yes, some may be higher than others, but we need some psychological wins more than we need a mathematical analysis. If math calculations alone could get us out of debt we'd already be debt free. Clearly the psychology of debt needs some victories more than interest analysis.
Second, eliminate debt at a torrid pace. Don't take on any new debt and cut up your credit cards. They, along with your "need" for things you can't afford are keeping you buried in debt. Cut up your cards and force yourself to stop digging your hole of debt any deeper. There is light at the top and the sooner you pay off your debts, the brighter and brighter that light becomes.
Once you gain a foothold on eliminating your debt, it's time to analyze something incredibly important: Insurance. It's time to insure that we're properly Insured.