ICFE eNEWS #14-10 - Jun 9th 2014

10 Tips For Dumping Debt
By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors

  1. Choose to live differently. I like Dave Ramsey's philosophy: "Live like you must live now, so you can live like you want to live later." Dumping debt begins with a determined attitude which then compels us to definite actions.
  2. Stop creating debt. Stop using your credit cards, stop borrowing, and live within your means.
  3. Spend less than you make. If you are running out of money before you run out of month, you are spending more than you make. Click here to download my "Debt Doctor Budget Sheet" to help you decide how much and where to reduce your spending.
  4. Avoid going into debt to pay off debt. Borrowing to pay off debt requires no change in your spending habits and therefore, does not produce long-lasting results. It is similar to digging a hole in your front yard to fill in a hole in your back yard.
  5. "Snowball" your debt payments. List all your monthly payments and keep paying at least that minimum on each debt. Soon you will be paying more than is required, and the extra amount will be placed on the principal. As one debt is paid off, transfer that payment to another debt, until eventually you are making payments on only the final few debts. These payments will be much larger than the minimum required, with the extra going to principal. Some people prefer to pay off the smaller debts first, others will pay first the ones with the highest interest rates.
  6. Fund an emergency savings account. Quickly acquire $1000 in an emergency savings account, and fund it each paycheck with an automatic payroll deduction. After acquiring $1000 in the account, then shoot for three months income in the account, then six months. We will either pay for emergencies by planning ahead, or we will pay for them by using credit and going into debt.
  7. Get your credit report. Go to http://www.annualcreditreport.com and get a free credit report. Take care of any delinquent debts, and dispute any information that is incorrect.
  8. Use automatic payments. Pay as many things (including savings) as you can with electronic, automatic payments. What we do not see or touch, we do not spend.
  9. Focus on getting out of debt instead of having tax deductions. The deduction for $5000 of interest paid on a home mortgage entitles you to no more than $1250 savings on your taxes. Ask yourself, "Would I rather have the $1250 tax savings or have $5000 in my hand from not paying mortgage interest because my house is paid off?" If I want deductions, I will give more to charities instead of giving interest payments to banks.
  10. Commit future monies to debt reduction. Make the decision right now that at least 75% of any raises, bonuses, tax refunds, or any other additional income will go to dumping your debt.
Ask Mr. G
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023

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Sent by:

Paul Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)

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