Debt Reduction Plans_1, Looking Beyond the Debt Symptoms

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Debt reduction plans_1, as promised, are discussed here. Hopefully, we won't run out of space and really get the two best methods explained fully. The two are Dave Ramsey's Debt Snowball Plan and the second is the Rapid Debt Repayment Plan by Mary Hunt.

I like both of them and they work because I tried both for some people who need help going through the steps. The groups I helped who went through the two plans succeeded in wiping out their debt because of their determination to carry through. They just really needed me for the calculation and to give them support and encouragement.

Among the people I helped, I am sorry to say that there was one who was not able to finish the program, but at least he didn't lose money because there was no upfront fee in the hundreds of dollars and didn't get penalties or sued because of the advice to stop paying the creditors. They just paid $10 an hour for each work I did for them.

I know that's a ridiculous amount but I am not here to earn money off the debtors. I am just charging that because I am losing the time I need to work on my website and I have to pay for my hosting fees. And I cannot promise to help everyone who asks because sometimes I get inundated with work and then I cannot accept new clients, until a vacancy occurs.

The one who did not finish the program actually reduced his debt because the three months he stayed with me, he sent his payment toward his debt and consequently reduced the money he owed for the same amount he paid. Now that's better than paying hundreds of dollars in fees and getting more in debt as a result. The only trouble is that if you do not stay on with the program, no debt reduction plans_1 will work

Let's tackle Dave Ramsey's Debt Snowball Plan. Essentially his plan is to pay the debts from the smallest amount to the largest instead of paying the debt that has the highest interest first. The psychology behind this is simple. Once you pay off the least amount of debt which is easier than starting to pay the large debt that incurs the highest interest rate, you will be so motivated to continue on with the plan.

Step 1. List down all the debts in no particular order with the balance, payment and rate of interest.

List of Debts Excluding Mortgage as of Month1, 2010
DebtBalancePaymentInterest Rate
Card #1$ 2050.00$ 61.0020%
Card #2$ 1580.00$ 47.0018%
Car Loan #1$14204.00$ 426.008%
Medical #1$ 100.00$ 50.000%
Car Loan #2/td>$13100.00$ 393.008%
Medical #2/td>$ 2000.00$ 60.0010%
Total$33034.00$1017.00

Step 2. Now arrange the aforementioned debt in order from the smallest to the largest.

List of Debts Excluding Mortgage Arranged from the Least to the Largest as of Month1, 2010
DebtBalancePaymentInterest Rate
Medical #1$ 100.00$ 50.000%
Card #2$ 1580.00$ 47.0018%
Medical #2/td>$ 2000.00$ 60.0010%
Card #1$ 2050.00$ 61.0020%
Car Loan #2/td>$13100.00$ 393.008%
Car Loan #1$14204.00$ 426.008%
Total$33034.00$1037.00





For any debt reduction plans_1, extra cash could be raised to add to the payment but to make this more simple, we will just put the extra cash we find from squeezing the budget, or having a yard sale into the emergency fund or the rainy day fund. So we will just make the payment as shown above.

Step 3. Two months after, the Medical #1 loan is paid off and the $50 will be snowballed and will go towards paying the next one in line which is card #2. Here's the shot of the debt after two months:

List of Debts Excluding Mortgage Arranged from the Least to the Largest as of Month3, 2010
DebtBalancePaymentInterest Rate
Card #2$ 1533.97$ 97.0018%
Medical #2/td>$ 1869.00$ 60.0010%
Card #1$ 1995.89$ 61.0020%
Car Loan #2/td>$12482.60$ 393.008%
Car Loan #1$13539.17$ 426.008%
Total$31419.66$1037.00





Payments were made to Medical #1 debt and so the chart above is showing that debt gone and the $50 a month paid to this is added to the payment in the next debt to be paid off the snowball way and so the $47 that have been paid for the last two months for Card#2 is now $97.

I am not allowed to have a web page this long but I think you got the idea. You will be debt free sooner than later because you are snowballing the payment of the debt that is paid off to the next one in line. And this is despite my adding the interest charge that accrued. And that is how some work - these they call debt reduction plans_1.





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