How to deal with debt? This is an important question to ask as we currently live in a society this day and age where many people are struggling with credit debt. Credit card debt is the biggest culprit, but other debts such as student loans, house payments, medical bills, and so forth are also a big part of the buildup of personal debt
It is important, however, to get a hold of your debt. A person can’t become wealthy if they can’t manage their own debts. Thankfully we have everyone’s favorite dad to thank for advice on debt control. Rich Dad. Rich dad from Rich Dad’s World tells us how to deal with debt. He explains that eliminating debt is the first step of many to increasing personal wealth in our lives.
The way to eliminate debt is through the careful organization and analysis of those debts.
Acknowledge the Truth About Your Financial Situation
If you can’t be honest with yourself and your partner and family, then you can’t improve your financial situation. Being dishonest with yourself or others is not how to deal with debt. When you are honest with others they will act as a source of support either through emotionally supporting, motivating, and cheering you on or through criticism and negativity which should act to drive and push you to prove them wrong.
Don’t Get into More and More Debt
Once you honestly decide to start improving your financial situation you must not take on any more debt. To continue to over spend money is not how to deal with debt. The only way to eliminate debt is to stop getting more of it! Put credit cards in a zip lock bag with water and throw it in the freezer. Likewise, only spend cash on items, daily supplies, and necessities. When you run out of cash, you must discipline yourself not to accumulate debt by spending what you don’t have.
Make a List of All Money Owed and Figure Out Who, How Much, the Minimal Payment for Each Debt
This list of money owed includes who you owe, how much you owe them, and what the minimal payment for each creditor is.
Pay Yourself First and Hire a Bookkeeper
Rich dad tells us that we must pay ourselves first before we spend ANY money at all. So determine a percentage of your paycheck (or social security or unemployment) and take out the cash for yourself first. This money should be spent in a specific way, it should be used for the necessities of life first and then if money is left over it should be invested.
Likewise, Rich Dad tells us that all rich people have a bookkeeper. It is the bookkeeper’s responsibility to keep track of the money coming in and going out and to provide you with a better financial picture of where you are at and where you are capable of going.
Organize and Order Your Debts
Take each debt and the amount owed and divide it by the minimal payment. If there is no minimal payment, divide by 0. Write the number down next to each debt. Now order these debts from lowest to highest. If you have two or more order them again from lowest amount owed to highest amount owed.
This will be your repayment plan to eliminate debt and is an important step in learning how to deal with debt.
Find Extra Money
Now you must find extra money. To eliminate debt requires extra money to put toward your debts. You can get this extra money by working odd jobs, getting a second job, or even starting a no cost start up business (lemonade stand for example). Do whatever it takes, as long as it is legal, to acquire extra cash.
Except for Primary Debt, To Eliminate Debt Pay Only the Minimal on All Other Debts
Now you will focus on the first debt on your list. All debts except for the first you need to pay the minimal amount on. For the first debt, you must also pay the minimal. Any extra money that is left over should also go toward paying off the first debt.
Repeat This Debt Repayment Process
Once that first debt is paid off, it’s time to repeat. Go to the second debt and do the same thing. Pay the minimal amount on all other debts, and as much as you can toward the new primary debt. Eventually this will result in you being debt free!
Now you know how to deal with debt. Always remember to use some of that money that you are paying yourself first with to celebrate each debt that is paid off and don’t forget to use a red marker or pen to put a visible line through the debt once it is paid off. This is so you can see your progress.
What if I Don’t Have the Money to Pay the Minimal Amount on Each Debt?
Knowing how to deal with debt also involves knowing what’s important. If you discover that you don’t have enough money/cash flow to pay the minimal amounts, then your plan will be to focus on the necessities first. They are, in order of importance:
- IRS Payments
- Student Loan Payments
- House/Rent Payments
- Car Payments
- Medical Insurance (If you have it)
- Household Items
- Everything Else
If you can’t take care of these things you need to seriously consider talking to a debt counseling agency such as American Consumer Credit Counseling. They will help to assess your situations and they may actually advise for you to declare bankruptcy. That should be the last alternative, however and not before you’ve tired everything else in your power to come up with extra money.