It seems as though people are “waging war” on everything these days. While some of it is serious, other so-called wars are just silly. However, there’s one area of conflict many people really need to take more seriously — coming up with a battle plan for winning a war with debt.
Far too many American households, lulled by the ease of spending with plastic and saddled with unexpected expenses at some point, have become enslaved to debt. It’s time to take back your life. After all, debt limits your choices by usurping your future even as it dominates your present.
Here’s a strategy you can employ to defeat debt.
Begin with a Tactical Assessment
You have to get to know your enemy before you can plan a campaign. Where does it reside? What is the size of its force? How susceptible is it to the weapons you have at your disposal? Do you have the resources you need to arrest its advances and eradicate it once and for all?
List all of your debts in a spreadsheet or on paper. Make note of the outstanding balance, the due dates of payments, the minimum monthly payment required and the interest rates they carry. You’ll also want to track all of your expenses for a month to get an idea of where and how you’re spending your money. This will help you see where you can apply more of your cash toward the eradication of debt.
Take stock of your income next. How much money are you bringing in each month? How does that compare to what you have to spend? If you’re making more than you’re spending, you’re in good shape. If not, you’ll need to make some adjustments before you can implement an offensive.
Formulate Your Strategy
Now that you’ve studied your enemy’s strengths and weaknesses, you can determine how to get out of debt.
Let’s say you have five outstanding debts with minimum payments of $150 each and you can afford to put a total of $1000 toward paying them each month. Most people would allocate $200 to each one and feel good about paying more than the minimum.
However, your enemy will continue to gain ground if you try to mount attacks on all five fronts simultaneously. It’s better to implement a massive push in one area while holding it in check everywhere else.
In other words, rather than sending each creditor $200, make the $150 minimum payment on all of them except the one with the lowest balance. This will give you $400 a month with which to attack its weakest position more vigorously. Once that one is defeated, you’ll have $550 a month with which to launch an assault on the next smallest one, then $700, then $850 and finally $1000 when you hit the biggest one.
Conversely, you can start with the one with the highest interest rate and work your way down. You’ll suffer fewer casualties this way (pay less interest), but it might be a while before you see your first victory.
Running the numbers will help you decide what’s best for your situation.
Either way, this battle plan for winning a war with debt will work. However, you must be careful to secure your flanks as you progress. Stop buying things on credit during the campaign. Use that $1000 each month to build up your savings and investments once it’s over so you’ll be less vulnerable to future incursions.