Debt-free in three years
I'm in a lot of debt. I'm paying my accounts every month and my target is to be debt-free in three years' time. What is the best possible advice that you can give me?
Ann Wilson, CEO of The Wealth Chef, a company which teaches people to become financially free, responds:
Firstly well done for making the decision to destroy your debt and get debt-free in three years. This is totally achievable with a focused debt-destruction plan and commitment.
Making the decision to change your current debt story and do whatever it takes to clear it from your life is key, because the next three years will require you to make some tough choices.
At times you may feel frustrated by the decision you have made and the actions it requires you to make, but you should just know that it is worth it. Being debt-free will put you in a tiny group of people who actually own their lives instead of owe it, and the freedom it will bring you in terms of choices you can make and things you can do it absolutely incredible.
In addition, the personal wealth habits you will be creating on this exciting journey will stay with you and help you go way further than debt-free living to create real sustainable financial security for yourself and those you love.
Congratulations on paying the minimum repayment of your current debts each month - you must continue doing this. Now create a plan to destroy this debt.
Here's how you do this:
1. List all your debts.
For each debt you need:
• A name;
• Who you owe this money to;
• How much you still owe;
• The interest rate you are being charged;
• The minimum monthly payment;
• Any special payment terms or penalties.
2. Order your debts from the smallest amount owing to the biggest.
3. Determine the total monthly minimum repayment you need to make on all your debts and commit to keep paying the minimum repayment on all these debts. Where you can, set up automatic payments via direct debit so you can relax and know it's being done.
4. Now focus only on destroying one debt at a time. Energy flows where focus goes and try to make extra payments on all the debts you will just feel deflated and frustrated.
Focus on the debt with the smallest amount outstanding and commit to adding a fixed amount to this debts repayment. The bigger you can make this extra payment the better. But just commit to an amount now and keep looking for ways to increase this.
5. 100% of this additional debt destroyer money gets payed against the smallest debt in addition to the minimum repayment amount. Any extra money you get from anywhere also gets thrown at this debt.
6. Keep destroying this debt, and once it is destroyed you take the full repayment amount you were paying on this debt plus the extra debt destruction amount you committed to - and you now add that money to destroying your second smallest debt.
This focused approach will give you a significant sense of achievement as each debt is destroyed, and as the debts drop off you will have more and more money to pay of the other debts quicker and quicker, accelerating your journey to debt free living.
7. Keep going and keep rolling the repayments to the third, fourth debt, etc as your debts are destroyed. Remember to celebrate your success as you go along.
Join the free 30-Day Money Makeover Challenge and learn how to manage your money and make it work hard for you so you have the skills to take this exciting journey way beyond being debt free to real financial freedom.
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
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