Deaden the Debt

Zen Mensch Accounting

The Holidays are coming (Oh No!) so this seemed a good time to discuss the hangover
— debt. This guest article is reprinted by permission from Larson Gunness’ groundbreaking book, Peace, Love and Financial Planning; an illustrated guide to money
Larson is a local financial advisor and creative entrepreneur — click here to see what I mean!

“Unless you come into a big chunk of money (inheritance, lottery, manna from heaven), there is no easy way to get out of debt. Debt works that way; it’s really easy
to get into debt, and hard as heck to pay your way back out. So if you have a
situation where you have many different debts spread out on various accounts and
cards, here’s a good way to pay them off. This approach takes time (as in years),
but if you’re diligent, it will work.

  1. First, get current on all your payments and stay current
  2. Pay the minimum balance on all of your debts, except for the smallest debt (lowest principal balance)
  3. For the smallest one, pay as much more per month as you can reasonably afford
  4. Make sure that extra amount is applied to principal (not to future payments)
  5. Keep focusing your extra payment energy on that smallest debt each month until that one is paid off (bravo, now you have one less monthly bill!)
  6. Then, take that extra cash flow and focus in the same way on the next smallest
  7. Keep that up until it is paid off (now you’ll have more cash flow, again)
  8. Focus on the next smallest, and then the next. And so on

Again, this is not a fast process but it works. This means you won’t be focusing
on paying down the one with the highest interest or the largest outstanding balance. The point is to try to focus on cash flow. You want to pay down debts that you can get rid of quickly, freeing up cash flow that you can use.

If fate smiles upon you and you do come into some money, be sure to do two things
with it: save some and use some to pay down debt. As with the process above, pay
down the smallest debt first. You want to make a meaningful difference in your
monthly expenses.”

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