Capital Community Credit Union Article:

When one decides to become debt free, there are certainlifestyle changes that need to be made. Much of the time it is a matterof prioritizing spending, and then making a budget and then sticking toit. Many people are content to merely continue on, making minimumpayments, or a little more, and feeling content that eventually,someday, they will be debt free. For those who are more inclined to bedebt free sooner, however, there is a system that works very well. Thissystem requires a measure of discipline to implement and stick with,but it will lead to faster debt reduction, and as you progress throughthe stages, you will find that the debt disappears faster as youprogress.

This system is not one that will guarantee freedom from debtimmediately, especially if you have a large amount of debt. What itwill do, however, is free you from the shackles of debt much fasterthan if you were to do nothing more than make minimum payments. Infact, you can cut your time in half or even more by following thissystem. The system merely forces you to analyze your spending anddecide how much money you spend on frivolous things. It forces you tolive within your means, and take any extra money you have, aftersetting a little aside for savings, and applying it toward debt.

The first thing you do, after determining how much extra you can affordto put toward your debt each month, is to order your obligations. Orderthem from lowest balance to highest balance. You will continue to paythe minimum on each loan (include credit cards as a loan, because thatis what they are) but you will apply the extra amount on top of theminimum of your first loan balance (the lowest balance). Keep payingthat extra every month. When that balance is paid, apply everythingthat were paying toward the next balance, on top of its minimumpayment. You can imagine how this would soon start to speed things up.Here is an illustration:

Say you have three balances, A, B and C. You decide that you can afford$25 extra dollars each month. Balance A has a minimum of $15. So, everymonth you pay that minimum plus the extra, totaling $40. While you aredoing this, you continue to pay minimums on B and C, so they are slowlyreducing (though not as quickly). When A is paid off, you apply theentire $40 you were paying to B, on top of the $25 balance. So you pay$65 on B and continue to pay the $33 balance you have on C. When B ispaid off, you add the $65 to the $33 and you are paying $98 a month onthe debt. However, you aren't paying any more in actual cash than youwere when you started paying off balance A. This can be used toprogress on to car loans, student loans and even home loans.

By committing yourself to becoming debt free, you can find a solutionto your problems and start controlling your debt, rather than have itcontrol you. With some discipline and priorities, you can become debtfree sooner than you might have imagined.

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