In preparation for purchasing my first home I went on what I referred to as, a debt cleanse. I cleaned up my credit report, paid off loan balances, and paid 100% of my credit card debt all within a matter of about six months. As a result, my credit score increased drastically. However, the most rewarding aspect was the feeling of being debt free–in terms of my credit card.
The first step is to list all of your debts and the corresponding amounts owed, in order from smallest to largest. In my case, I wanted to focus solely on credit card debt, however this method can work for any type of debt. Here’s an example:
Medical Bill: $350 ($40/m. payment)
Capitol One CC: $948 ($45/m. payment)
Bank of America CC: $1,450 ($60/m. payment)
Chase CC: $1,700 ($65/m. payment)
Car #1 Loan: $9,812 ($215/m. payment)
Now comes the fun part! Start with the smallest debt, which in the case of our example, is the $350 medical bill. Attack that debt as soon as possible, paying it in full. In the meantime, make sure you are still making the minimum payments on the other debts.
Once the medical bill is paid off, move on to the next debt, which in this case is the Capitol One credit card. Take $350 (freed up from the medical bill), plus $45 (the minimum payment for the C.O. cc), and apply that total, $395, to the Capitol One credit card bill each month. By doing this you’ll have the Capitol One credit card paid off in less than three months.
Now on to the next debt. Take the $395 plus $60 (BOA cc minimum payment), and apply that total, $455, to the BOA credit card. In another three months, you’ll have that debt paid off as well.
Got the hang of it yet? Great!
Keep going down the list, using this method, until each debt is paid in full! And don’t forget to celebrate your progress! Each time you pay off a debt, you’ll be able to breathe a little easier.
Best of Luck,