Taking Credit Part II

Having said all that in the last post, I thought I'd give some solutions.

There are a few different trains of thought...

First is the:
PAY OFF THE HIGHEST INTEREST RATE FIRST.

This school of thought gives the best return on your interest.
And involves paying the minimum payment on the balance of the accounts to pay off the worst.
After retiring that debt, the payment is then added to the minimum balance on the next worst debt. And so on till all debt is retired.

The second is:
PAY OFF THE LOWEST DEBT FIRST.

By looking at the minimum payments and the smallest debt, this method frees up cash the fastest.
Again, the payment from the retired debt is added to the next minimum payment of the new smallest debt and this works exponentially.

This method pays off the debt the fastest.

This occurs because some of the highest interest rate cards will charge the lowest minimum payment.

Ie. *The Card that Pays You Back* (HA!) carries the highest rates (they would not negotiate to a lower rate) but the lowest minimum payments via the amount of debt owed. In return, the ratio of principal to interest paid in the minimum payment is the highest.
87% !!! of the payment goes to interest only...

And then there is the very effective:
MAKE ONE ADDITIONAL PAYMENT A YEAR.

This works wonders with fixed rate loans, such as mortgages.
By making only one additional payment on your debt a year, it will be paid off as much as 15 to 18 years earlier. This additional payment should be marked, "For principal only".
A very good return for the money.
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Zelda and I are budgeting our moneys to try the first and third methods.

I personally prefer the second (and third) as although there is more interest paid, by freeing up the cash from the smaller loans, it provides more flexibility. And I like the idea of the accelerated payoff.
(The actually amount of higher interest paid is negligible because all debt, higher and lower interest, is paid off sooner.) Then I can turn that money to working for me.
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Add to all this is the sometimes referred to:
LATTE FACTOR

This is the discipline of becoming aware of the luxuries of life we begin to think of as necessities. And eliminating them or at the very least, down sizing them.

Zelda and I are in love with a local Gelato company, Paciugos. (NO, Zelda and I are not cheating on each other. It's more like ice cream swinging..)

(I looked into franchises with them when they first opened, but at the time, they were private. They have since begun to sell them, but out of state.)

For $4-$6 we can get two small cups of some very yummy gourmet Italian ice cream.
For that same price we can buy a 1/2 gal. of Bluebell. Another very yummy local ice cream. And tuck those $4-$6 payments we won't be making (on our way to a 1/2 gal.) anymore into our debt payoff.

The idea is buy what you will buy, but be mindful of what it's going for and by cutting back and SAVING those purchaises, one can build a nice savings, or put it to work.

Cutting back on a daily coffee, snack, and lunch, (maybe $10.00 a day, if put to work earning only 10% over one's life time will turn into $1 with six zeros behind it...all for the price of a cup of coffee a day...) and if used to pay off a 24% debt automatically earns you 24% on that money...
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And finally, there is the best method for debt elimination, which is:

LIVE BELOW YOUR MEANS.

Simple really.
Don't spend more than you earn.
Use cash only.
You have the most control over how much you spend this way.

It's the method of payment at the Dallas Farmers Market.

We take only $35.00.

When we run out of money, we are done shopping.

We have the freshest food we can buy at the best price.

And even have change left...!