When it comes to debt, its important to know that there is good debt and back debt. Good debt is debt that puts money into your pocket. An example is a bond you take out to buy an investment property. This debt is good if the rental income from the property is more than your bond repayment. Bad debt is debt that doesn’t put money back into your pocket. Examples of this are revolving debt like credit cards and clothing account.
Get rid of bad debt. Its a load that can and will keep you bound and in reverse mode financilally if you keep it.
Steps to get rid of bad debt:
1. Analyse how much bad debt you have: List all your bad debt. How many credit cards/clothing accounts/monies you owe friends etc do you have and how much needs to be paid back on each?
2. Decide which one of your bad debts you will get rid of first: Will it be the one with the highest interest rate? This would save you some money in the long term on the amount of interest you pay overall. OR Will it be the one with the smallest amount? This would be a quick win and would motivate you to keep going.
3. Keep paying the minimum repayments on all of your bad debt and pay more than minimum on the one you chose to get rid of first: Paying a minimum repayment on all your debt will ensure that your credit record remains good but will not get you out of debt quickly. Pay more than the minimum on the one you chose to get rid of first and watch it disappear! How much more? Atleast 20% more than the minimum.
4. Once you clear the ‘first chosen debt’ off move on to the next one: we’ll call this the ‘second chosen one’. Take the WHOLE amount that you were paying on the first chosen debt (that you have now cleared) and ADD it onto the repayment you were/are making on the second one. This will ensure that you pay off your second debt quicker.5. Stay disciplined and focused and watch all your bad debt fall away!
5. Stay disciplined and focused and watch all your bad debt fall away!