Bad debt is easy to get but getting rid of it can be like a ball and chain around your neck. In Jamie McIntyres book, What I Didn’t Learn at School But Wish I Had he covers a debt reduction strategy that can help reverse the situation.
Remember there are two kinds of debt, good debt and bad debt. Bad debt is the kind that once purchased goes down in value and is usually not tax deductible such as holidays, clothes and cars. Good debt on the other hand is when you buy something that goes up in value and has a number of tax deductions, such as property or shares.
Jamie’s strategy is designed to get your bad debt under control so you have the opportunity to increase your good debt and create more wealth in your life.
First of all list all your debts as shown in the example below:-
- Personal Loan 25 000 Payment Amt 520 Factor 60
- Credit Card 5 500 Payment Amt 160 Factor 34
- Store Card 4 500 Payment Amt 160 Factor 28
Total 35 000 Payment Amt 840 per month
In this scenario the factor is the number of payments left to make. By taking the lowest factor, being the least number of payments to finalise the debt, and increasing the payment with any extra money you have you will decrease the amount of time required to finalise it. For example, let’s say you decide not to go out for dinner once in the month and that gives you $100 to spare, add this to the $160 store card payment, this will reduce the factor to 17. So ,in seventeen months your total store card debt will be gone and you can then add $260 to the credit card debt. So now you are able to pay $260 + the original $160 = $420 off the debt per month. This means your credit card can be paid off in thirteen months instead of thirty four.
These figures are a little off due to balance adjustments as payments are made, but I hope you get the idea and can apply it to your own debt.
The most important thing to do if debt has got out of control is to contact the lender, inform them of your situation so you can work out an acceptable payment arrangement.
Have a great day
Teresa and the Team at
