Serious About Paying Off Your Debt? Quit Trying to Save & Focus Fire!
Have you seriously considered paying off your debt, but you are also worried about saving money? Here is the solution – stop saving! If that sounds crazy, let me explain.
The High Cost of Consumer Debt and Low Earnings Potential on Savings
Consumer debt such as credit cards and unsecured loans typically come with high interest rates ranging from 9% to as high as 30%. Savings accounts, on the other hand, currently pay almost no interest. Even if you have a very high balance in a savings account, 1% is about the best you can do without tying your money up in a CD.
If you try to save while you pay off your debt you’ll never get ahead. This is because anything you save will likely be less than the interest you are paying on your consumer debt. This is why you need to quit saving. Not forever, but just until you pay off your debt.
How to Focus Fire your Money
The best action plan for getting rid of your debt is to Focus Fire your money and what it goes toward.
What does this mean? It means aggressively paying down one debt at a time. You should choose the debt with the highest interest rate first and put 100% of your extra money to paying that debt off. The result is that you will pay off the higher interest rate debt first and save yourself a lot of money in the long run.
When you put that $100 in savings instead of paying off the high interest credit card that charges $60-$100 in interest every month, how much are you really saving?
You could also Focus Fire your money on the smallest balance first. If you have a $5,000 credit card balance and a $400 credit card balance, put 100% of your extra money towards the $400 balance. You’ll be able to pay off the balance quickly and feel a sense of accomplishment. After you pay off that small balance, start paying off the next lowest balance. Once some of these smaller bills fall off, you’ll be addicted to paying them all off!
Start Saving Again
Once you have used the Focus Fire method to pay off your debt, start a portion of your extra money in savings (but not before).
You are already used to putting 100% of your extra money towards your debt, so keep up the discipline. Put a good portion of your extra money each month in a savings account for unexpected expenses. Next time you have a unexpected major car repair, you’ll use your savings for the repair instead of pulling out the credit card.
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Readers, what are some of your ways of paying off your debt quickly?