If you want to be well off some day, diminish debt now
It’s so easy to buy anything you want with a credit card. That piece of plastic makes you feel rich, doesn’t it? Getting everything you need now seems really smart. No cash needed. However, if you’re buried in debt, you can never hope to be well off until it’s all paid.
You’ll never get ahead with a lot of debt
If you’re determined to live the good life some day, get rid of unnecessary debt now. Of course, most people have to live with monthly mortgage or rent payments, but all other debts need to go. Pay down as fast as possible credit cards, student loans, auto loans, dental and medical bills, home improvement loans, emergency repairs, etc.
Follow this formula for eliminating debt:
- Line up all your bills from smallest to largest.
- Jot down the amount of money that is left after paying for food and shelter.
- Divide that amount into pie pieces, allotting the biggest slices to the smallest bills.
- Keep making the largest payments on the smallest bills as you go up the ladder.
- As each bill gets paid off, use the amount saved on the next smallest bill until you reach the top.
- With just the last big bill left to pay, you can put your entire bill-paying pot to work on that one.
Debt keeps people in the poor house, because interest rates on credit cards and other loans are almost always much higher than anything earned on investments. A stickler about getting rid of debt, certified financial planner Ronald VanSurksum, Advanced Asset Management, puts people on the road to wealth by encouraging them to have a debt pay-off plan before making their first investment.
While some financial advisors favor paying off debts with the highest interest rates first, others recommend this small-to-large bill-paying strategy. It gives debtors a sense of accomplishment as bills disappear. Small bills are easiest to pay off, so people are usually more motivated keep on attacking the whole stack once the first few have been eliminated.
Need help reducing debt? Call Ron at Advanced Asset Management at 616.531.5220 for advice.
Manage Your Money is provided by Advanced Asset Management LLC Ronald Van Surksum, CFP 4555 Wilson Ave SW – Suite 2 Grandville, MI 49418
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