Stair-stepping Debt Payoff
by Michael Sarracini
As Human beings we usually don’t get excited about things like paying off debt,
so we sometimes need some reinforcement along the way.
There is a better way to structure your debt payoff plan that will provide reinforcement
as you go and speed the process as well.
Let’s look at a sample consumer’s accounts and see how this stair-stepping
plan will allow them to reach their goal sooner and will provide them with
reinforcement along the way. Here are their current accounts:
This consumer wants to begin to pay off these accounts and he’s in a hurry.
He also currently has an extra $150/month available to get the ball rolling. So,
what should he do to get these paid off as quickly as possible and get a little
positive reinforcement along the way? What is that reinforcement? It’s paid off
Let’s take it in ordered steps:
Start with Mastercard 2, the lowest balance. The consumer is already
paying $50/month, so he adds the extra $150 to that and pays $200/
month on this account. In four months, more or less, it will be paid
off. We’ll ignore interest for the moment and just estimate months
Now that Mastercard 2 is paid off, go to Mastercard 1. He now has the
original $150/month plus the $50/month he was paying on the other
Mastercard, so he adds that to the $75/month he’s been paying on this
card. Now the payments are $275/month on this card. This balance
will be paid off in about five months.
Attack the Visa next. The consumer has $365/month now to apply
toward this card. In about six months it will be a nice zero balance
and he can move to the next loan.
Adding that $365 to the $250 he’s been paying on the consumer loan,
he can begin paying it off at $615/month. In about five months he can
kill this balance and start working on that car loan.In about 20 months
this consumer has paid off all of his revolving debt except the car payment.
He is now saving enough in monthly payments to buy a
rental home. Or, he can kill that car payment and have enough for a larger rental
home, maybe even two of them!
Not only has he paid off his credit card debt, but he’s greatly improved his
credit scores and has a lower debt ratio. This will help him get mortgages at much
better rates and add significant profits to his bottom line throughout his lifetime
of cash flow