Part 3:
2. Get Rid Of Debt Using The Snowball Effect
This is a very effective and simple solution to getting out of debt and can be fun once you start to see the results. All it involves is writing a list of all your debt on a spreadsheet:
Start with the largest debt first going down to the smallest one. Then, once the smallest debt is paid off take that instalment and add it to the next debt. Carry on until you have paid off all your debt, this in record time.
Here is an example of Joe Soap, who is in a lot of debt:
This is a very effective and simple solution to getting out of debt and can be fun once you start to see the results. All it involves is writing a list of all your debt on a spreadsheet:
Start with the largest debt first going down to the smallest one. Then, once the smallest debt is paid off take that instalment and add it to the next debt. Carry on until you have paid off all your debt, this in record time.
Here is an example of Joe Soap, who is in a lot of debt:
- - - - - - - - - - - - - - Amount Due / Instalments / Months Left
Home Loan:- - - - - - R800 000 / R 8000 p/m / 300 (25 years)
Car HP: - - - - - - - - -R 90 000 / R 3500 p/m / 54 months
Personal Loan:- - - - R 50 000 / R 4500 p/m / 45 months
Credit Card: - - - - - R 40 000 / R 4000 p/m / 18 months
Clothing Account "A": R 5 000 / R 500 p/m / 12 months
Clothing Account "B": R 2 500 / R 350 p/m / 12 months
Joe Soap spends on luxuries:
DSTV - R500 p/m
Entertainment - R800 p/m
To get out of debt Joe needs to take massive action. This means he should make some sacrifices now, for longer term rewards. Joe decides to sacrifice the DSTV and he halves the amount he spends on entertainment. This gives Joe an extra R900,00 per month to use to pay off his debt.
Immediately he takes this R900 and adds it to the R350 instalment of his Clothing Account "B".
R1250 p/m is paid into that clothing account, it only takes two months to settle this account instead of 12!
In month 3, Joe uses the R1250 p/m adds it to the R500 instalment against Clothing Account "A" and he makes payments of R1750 p/m towards the remaining R4000 balance. Joe, has now settled this account in just 5 months, 7 months ahead of schedule!
Joe repeats the same plan of action and he takes the R1750 p/m adds it to the R4000 instalment of his credit card and makes R5750 p/m instalments against the remaining balance at this stage of R34 400 p/m. It only takes Joe 6 months to settle his credit card.
Only, 11 months into the plan Joe has managed to fully settle 3 major accounts that seemed overwhelming in the begining.
From here Joe added the R5750 plus the R4500 monthly instalment on his personal loan amounting to R10 250 p/m and paid off the balance of his personal loan, at that stage R18 500 in less than two months.
Just over a year, in a record breaking 13 months Joe has now paid off the majority of his debt and is way ahead of schedule. He then decides to repeat the plan and starts to use the extra R10 250 p/m adding it to the regular R3500 installment on his Car's HP. At the time the settlement balance was R67 000. By making monthly instalments of R13 750 p/m Joe managed to settle the HP withing 5 months! Unbelievable, Joe's Car is now fully paid for 18 months after he started the break free from debt snowball effect!
In only 18 months Joe managed to get out of a mountain of debt. The only debt Joe has left is his home loan. If he wanted to from here he could continue to use the snowball effect and use the extra R13750 p/m he would normally have spent on his debt and put this into his home loan.
That would contribute an extra R165 000 p/a into Joe's home loan and would make it entirely possible to pay his home loan in only 5 years.
Through a bit of sacrafice and some action you can like Joe get out of debt and break free from financial bondage for life!
Wayne Dyer once said: "You're not stuck where you are unless you decide to be"
