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How to Pay Off Your Debt (The Fast Way)
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You need to get rid of it once and for all. I am going to show you how to pay off debt the fast way.
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The amazing thing is, you will have options.
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I still remember the day I got my first shiny new credit card in the mail.
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It was my first card that I got to βbuild up my creditβ. So I decided to run that bad boy through a few registers. I bought some groceries, gas, and some other things I needed.
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About a month later the credit card statement came in the mail. I spent $350. At the very bottom of the page, the credit card bill said in bold letters. Amount due: $24.
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I could not believe what my eyes were telling me. I could spend $350 and only have to pay $24? This has to be too good to be true.
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Of course, it was. As I kept reading, I realized that I would have to pay 18% interest on the remaining $326 balance. Did the credit card company think I was a moron?
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Unfortunately, they did. They trap people into this scheme over and over.
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Debt is a National Crisis
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Debt has become extremely easy to obtain. You wouldnβt be pushing that car without easy financing. It is something that is promoted to us as βGoodβ.
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There is currently more debt than ever before. In the U.S. alone there is:
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-Over 8 Trillion in home mortgages
Over 2 trillion in student loans
Over 3 trillion in Consumer debt and Auto Loans
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Hereβs the average amount of debt for each age group:
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- Under 35: $67,400
- 35β44: $133,100
- 45β54: $134,600
- 55β64: $108,300
- 65β74: $66,000
- 75 and up: $34,500
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Money Is A Powerful Tool β Use It Wisely
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One thing that I just cannot understand is the fact that people would rather have material things that, in essence, make them work much harder and longer than they have to. Debt is dumb, and borderline insane. It has to be addressed blatantly.
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If you are currently taking on debt, specifically consumer debt, then you need to stop (in the name of love) now. No ifs ands or buts. It must end, youβre destroying your life one transaction at a time.
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I talk about empowering your life through money. It has nothing to do with pinching pennies, nickels, or dimes, but using money to put you in the driverβs seat.
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Money has the capability of changing your life for the better. It gives you the opportunity for pure freedom. But if you are carrying debt then you are going in reverse.
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It is crippling to you and your future.
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If you are already in debt, and reading thus far was an extreme bummer, cheer up because I will show you how to develop a plan. A plan that will bring you back to freedom.
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Reasons Debt Brings You Down
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Debt takes away your Cash
Without debt, you can keep your cash for the things you care about. Your cash is what can bring you value. It allows you to put your money towards the things you want. Even if you live a lavish debt lifestyle, the more debt you take on, the more your income is eaten away.
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Debt Takes Away Your Opportunity
Every dollar that you have to pay back with interest is money you could be using to increase your balance sheet. If you are slaving away to pay off your car loan, when you could be investing in index funds, you are losing the opportunity that those investments could bring forth.
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You are Enslaved to Your Job
Debt requires you to have a job. You have to work so you can pay for your debt. You can no longer make choices that align with your values.
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Debt Increases Stress and Anxiety
Debt can make you feel like an entire mountain is sitting on your chest. This pressure can build. Studies show that you feel the same emotions as an addict: Guilt, shame, remorse, and helplessness.
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If You Are Already in Debt Stop Digging
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If you are already in a hole, the first thing that you must do is stop digging.
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If your debt is growing every month, you need to find out why. You cannot keep consuming above your means. The number one way to win at this game we call money is to spend less than you make.
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Itβs a simple concept yet most people do the opposite. Letβs crush your debt once and for all.
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How to Decide if You Should Pay Off Debt
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Many people wonder if they should even pay off certain debts. I know I ask myself the same question.
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The quick answer is that it depends. Mainly on your interest rate and comfort levels. My mortgage is only 4%, but I make 8% on average in an index fund, wouldnβt my money be better served in the market?
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This is a valid point and something that needs to be weighed out. Here is my rule of thumb on interest rates when it comes to paying off debt.
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- If the debt is 3% or less, pay off the debt slowly, and invest your hard-earned dollars.
- If your debt is between 5%-6% use your best judgment for your situation.
- If your debt is over 6% pay it off!
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If debt brings you anxiety or worry. Then just get rid of it, no matter the interest rate. You want to have a clear mind so you can make good, sound financial decisions. β
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Allowing something like debt to take away your mental health is not an option. Just crush it, so you can have a clear mind.
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The Fast Way to get Rid of Your Debt (The Debt Wrecking Ball)
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The Debt Wrecking Ball
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Debt Is Like Miley Cyrus β You need to come in like a wrecking ball.
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The fastest way to get rid of your debt is simple. You list your debts from the highest interest rate to the lowest.
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Step 1: List your debts in order from the highest interest rate to the lowest interest rate.
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Listing your debts from the highest interest rate to the lowest interest rate will give you an attack plan. This allows you to get rid of your debt faster. Identity your highest interest rate debt as the one you will pay down aggressively first.
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Step 2: Refinance Your Loans for lower interest rates.
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Consolidate and refinance when it makes sense. If you have a high interest rate, then you will get ahead by refinancing. If you are trying to pay off a small amount of debt (less than $10,000), skip this step and put all your focus on getting rid of that nagging debt.
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Step 3: Cut Back on Expenses That donβt Bring You Value
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Cut back on all the splurges that donβt bring you any value. Eat out less. Spend less on groceries. Cut out the excess. Do whatever you can to get your expenses down so you can get rid of this debt.
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At the same time, sell off items in your house that you donβt want/need anymore. Throw the extra money at the debt.
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Step 4: Throw Every Extra Dollar at the Highest Interest Rate. Pay Minimum Balances on all Other Debts
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Pay the minimum balances on all of your debts except the one you want to get rid of. Then go after your priority debt (the one with the highest interest rate). Take every extra dollar and chuck it at that debt. You will begin to see that remaining balance fall. Let those small wins motivate you.
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Step 5: Once You have Blown the First Debt Out Of the Water Move on To The Next. Repeat Until Your Debt Is Eliminated
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After you have eliminated the highest interest rate debt, move on to the next highest interest rate. Once the debt is gone, have a party. Then shift that money to investments so you can pursue financial independence.
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The Alternative Option β The Debt Snowball
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The debt snowball is not my first choice because it is a slower way to pay down debt. There is no denying that it has worked for many people. Which is why it has to be proposed as an option.
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When tackling debt, understand that personal finance is 80% behavior and 20% head knowledge. The second option is that we attack our debt from a psychological perspective.
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How the Debt Snowball Works
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Go at the debt with the lowest balance first. This approach will give you the feeling of a small win and give you a feeling of control (Dave Ramsey brought this to the forefront).
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Start by listing your debts in order from the least to greatest. It could be something like:
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- $700 Medical Bill
- $4,200 Credit Card Bill
- $9,000 Car Loan
- $19,000 Student Loan
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Make the minimum payment on all the debts, then attack the smallest one first. Something like the medical bill can be paid off in a month or two.
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Once that first debt is paid off, you take that extra money and go after your next debt, the credit card bill. Pay off the credit card bill then take all that money and roundhouse kick the car loan.
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By now you will be a black belt in debt karate and you can face the grandmaster, the student loan. The reason why this works is that you are freeing up your minimum payments on other debts (by paying them off like a boss) and moving them towards your next victim, I mean debt.
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Your Money Can Work Much Harder Than You Ever Can.
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Once your debt is paid off, have a party. Play some Earth, Wind, and Fire and celebrate. You, my friend, are now about to begin your journey to building wealth. Your debt steals away the ability to put your dollars to work for you, they instead work against you. You can now work toward building something great for your future. Your goal is to avoid ever letting debt creep back into your life and moving forward. You can now pay yourself first instead of throwing your money down the interest rate toilet. In turn, you can drive those interest rates in your favor by making smart, sound, investing decisions.
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Sum it Up
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If you are in debt, you have made a mistake. This can actually be helpful because you can learn a valuable lesson. Those who succeed, learn from their mistakes and those who fail to build on their mistakes. Your debt is a tidal wave of an emergency. Donβt try to keep up with your friends, do what is best for your situation. Spend less than you make, and invest the rest soundly.
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