Let's be honest. Hoping for a big inheritance or to win the lottery is not a proven plan for building wealth. The only sound way to build wealth is to control your income. Some people think that just making more money will solve all of their problems. Build you business bigger or get the promotion with the big raise. Those will certainly help if you control your income, but most people do not. The more they make, the more they spend, so they have to chase even more money to try and keep up. This is money and the money lenders controlling you and your life.
Now, imagine if you didn't have car payments, student loans, credit cards payments, medical bills, or a mortgage. With no debt, you could become wealthy very quickly with some sound investing. Most of you reading this probably think that will be impossible in your situation. Very difficult maybe, but not impossible if you make the commitment to do it.
Consider these statistics: A typical American with a $40,000 a year income normally has a:
- $850 house payment
- $350 car payment
- $180 second car payment
- $165 student-loan payment
- $185 in minimum credit card payments
- $120 in miscellaneous debt on furniture, etc.
If you could take that $1850 a month and invest it in an average growth mutual fund instead of sending it to the creditors, you would be worth a million dollars in fifteen years, two-million in twenty years, three-million is twenty-three years, and five-million in twenty-eight years. Is that worth the hard work now to create your dream life later?
So how do we eradicate all of our debts? You have already taken the first steps to pave the way to the finish line when you created a budget that spends no more than your income and creating an emergency fund. Remember that in this process, what happens throughout the course of your lives will change the numbers, but the process that you will follow here is to learn how to control money instead of it controlling you.
Eliminating your debt starts with listing all of your debts in of order of smallest payoff balance to the largest, except for your home. You'll get to that later. Any debt that is less than 50% of your annual income must be included. Be sure to list ALL of your debts, even that money you may have borrowed from your family or medical debts that have no interest. It doesn't matter what the interest rates are. Just list them from smallest payoff to largest payoff.
There is really no secret to why we pay off debts like this. Paying off that nagging $50 medical bill or $80 cell-phone bill (still hanging around from when you closed the account) may not seem to make much of dent. That doesn't matter. What you are doing is starting the process of changing your behavior so that you will learn to be the master of your money. As you pay off each debt, you will find yourself becoming more fired up that this is a future you can really have.
After you have listed your debts in order, pay the minimum payment to stay current on all the debts except the smallest. Every dollar you can find from anywhere in your budget or extra jobs goes toward paying off the smallest debt. Once the smallest is paid, the payment you used to send to that debt, plus any ?found? money, is added to pay off the next small debt.
When the second debt is paid, you take the money that you used to pay on number one and number two and you add it to the payment on debt number three until it is paid. When three is done, you attack the fourth on your list, and so forth. Every time you pay one off, the amount you pay on the next one increases. As the amount you pay increases, you keep picking up steam until you are debt free except for your home.
You will find that once you start picking up steam, your focus on the finish line will sharpen, you will suddenly 'find' new sources of income, and you will start staying to yourself, 'To the exclusion of virtually everything else, I'm getting out of debt!' You have changed your behavior and now control your money, instead of it controlling you.
Of course, none of this is possible unless you quit borrowing money. You have to draw a line in the sand and say, 'I will never borrow again.' Once you utter that, there will be a test. An emergency (or perceived emergency) will happen to try and get you to use that credit card. If you can't resist, it may be time to gather the family around and have a cut up the credit cards party. I've know people who cut up their cards and then use the account number to go online and buy things where you don't need the physical card. Cutting up the cards is more than a physical act. It is a mind set.
When some people do their budget, there is barely enough to make the minimum payments, with nothing left over to pay extra on the small debt. If you find yourself in that situation, you need to do something to give it a push. You need to find some extra income, sell some things around the house you don't need (you can buy better ones when your debt is gone), make crafts to sell at the flea market, etc. If your car can't be paid off in eighteen to twenty-four months, you may want to consider selling it and paying cash for an older car. That boats, baseball card, or coin collection may be precious, but if you could start a new way of life by selling it, wouldn't it be worth it? Remember that God tends to pour blessings on people going in a direction He wants them to go.