You need a good debt-repayment plan
If you're in debt, you have to get out by whatever
means works for you. So put together a plan -- then stick with
it. Commit to do whatever is necessary to complete the plan.
Above all, remember: a plan is only as good as your ability
to stick with it. Just like diets, all of them work in theory.
The true test, however is which diet will you stick with? No
matter how effective the plan is on a daily basis, if the regimen
is outlandish and impractical, you will not stick with it no
matter how good it looks on paper.
When evaluating a get-out-of-debt plan, you
should look for the following characteristics:
- It is specific
- It is easy to prepare
- It is simple to understand
- It is visually pleasing and suitable for
- Its results can be measured
- It has a specific finish date
When it comes to this kind of effort, the simpler
the better. But don't sacrifice quality on the altar of simplicity.
The Rapid Debt-Repayment Plan
I have developed a plan that fits the above
criteria. It's a simple plan and effective because it works.
I call it the Rapid-Debt Repayment Plan.
The Four RDRP Rules
This plan is simple because there are only four
rules. If you adhere closely to all four rules, you will get
out of debt in record time.
Rule #1: No more new debt. Unless you
are willing to stop adding to your unsecured debts, you're really
out of luck when it comes to debt-proofing your life. Furthermore,
if you don't stop adding to the problem, you'll be like the
homeowner with the kitchen fire -- except instead of putting
out the blaze that's ready to destroy the entire structure,
you'll be pouring gasoline on it. It might be manageable for
a while, but you'll be on your way to a full-on raging inferno.
The rule is simple: add no new revolving unsecured debt.
Rule #2: Pay the same amount every month
disregarding the declining minimum amount due as stated on the
monthly statement until that debt is paid. If you are following
Rule #1 religiously, you will soon notice something peculiar
about your minimum monthly payment: it will start to shrink.
Credit card companies in particular are not that interested
in your paying off your debt. They'd like to keep you in the
position of paying them a tidy sum of interest every month for
the rest of your life. That is why your minimum monthly payment
may be a percentage of the remaining balance, generally 2 to
#2 requires that you pay no less than the amount
of your minimum monthly payment required for the first month
of your repayment plan. In the Greens' case, their current MasterCard
payment is $115, which is about 3 percent of the current principal
balance of $3,897. Next month the required payment might drop
to $113 or $110. Nonetheless, they will ignore the change and
commit to paying no less than $115 every month to MasterCard
until that debt is paid in full.
Rule #3: Line up your debts according
to size, putting the one with the shortest pay-off time at the
top and the one with the longest term at the bottom.
Rule #4: As one debt is paid, take that
payment and redirect it to the regular payment of the next debt
in line. This rule requires that until completely debt free,
you pay the same total amount toward your debt (in this case
$640) until all debts are paid. For example, when Optima is
paid in full, the Greens do not absorb the $50 they have been
sending monthly to Optima into their regular household funds.
They redirect it to the next debt in line.
If you haven't already asked the following question,
you probably will at some point: Wouldn't it be better to line
up my debts according to interest rate, with the highest interest
rate debt in the first position rather than the debt with the
Theoretically, perhaps that would be the
way to go. And you are going to hear many financial experts
who advise that method. But I have worked these plans every
which way possible, and still believe that the potential difference
in interest is miniscule enough compared to the benefits of
using a plan that has a high probability of taking me across
the finish line -- or to the starting line, if you know what
I mean. The RDRP is a plan that works because it is something
you can live with. It is both economically and emotionally sound.