After filing for bankruptcy in 1996 I vowed to never, ever allow myself to be so financially irresponsible that I would be standing in a court room begging for financial forgiveness from the companies I owed money too. Having a judge rule to forgive that debt and let someone else (the consumer) foot that bill. Yet a couple of years ago as I was going over my bills I found myself in that very same position. More money going out than coming in and feeling helpless against the river of debt I was shackled too. After carefully going over my finances, I found myself fixed on only the “BIG” ticket items. The house payment, the car payments, the insurance payments, the trailer payment, and the boat payment, I started to think “what if I sell this, or what if I sell that” ah the “what if” game. Sure you can sell those items (at a loss) and eliminate the payments, but we all need a car, we all need a residence, we may not all need a trailer or a boat, but I knew I would try and replace them and that means I would have lost out on all the money I had already paid. I had to think harder to make this happen. One morning while I was sitting in Starbucks looking at my Double Mocha, it dawned on me, I had the solution.
I went home and cut up my credit cards. I had come up with a plan, a plan so brilliant that I knew if it succeeded anyone with any amount of income could make it work. Ok it really wasnt “BRILLIANT” but it worked,so please read on..
If you have a high interest rate card with a fairly high balance owed and still have some good credit left, find another credit card that is 6-12months of no interest. Apply to have that balance transferred to the new card then cancel the old high interest rate credit card. The key is when the new credit card comes (you’ve already cut up the old credit card) cut that card up as well. Don’t leave yourself the temptation to use it. Then pay the credit card off with no interest, you are now saving 25-45 dollars a month depending on your account balance. If your credit is already toast. Find a luxury item that you do daily (for me it was Starbucks) add up what you spend on that item (4.95×20 work days=$99.00 a month) and use it to pay off the credit card debt.
Kill the car payment. Just as I squashed my credit card debt, I also need to squash the car and trailer payment. I added up the amount of times we (my wife and I) were going out to dinner a week and took half of that money and placed it on my trailer payment. I picked the trailer payment because it had the highest interest. After the first month of only cutting back to once every two weeks, instead of once to twice a week, I had doubled my trailer payment and I paid it off 16 months early. I then took half that payment and put it on the car and the other half went into the savings account. I am currently on track to have the car paid off 13 months early. I did sell the boat, but only because I purchased a VERY used version of a similar boat cheaper and I ended up breaking even on the monies. That payment is now on my mortgages principal.
These are just two examples of tackling large debt, I have also tackled the mortgage with the same formula and it seems to be working well. Remember it takes patience and persistence to make anything work. I know this won’t work for everybody, but I believe that if you work hard you can always take one dollar and turn it into two.