Okay bloggies its that time again,, Two Cents Tuesday! Today’s topic is debt. There are many ways that advisors and financial guru’s like to approach debt, but I think two are the most common out there right now. So we’ll touch on both and hopefully you can pick and choose and find the one that is right for you and your family.
1) Oprah’s Debt Diet- I think this was created with the help of David Bach, Jean Chatzky and Glinda Bridgforth, but I’ve also seen her talk about eliminating debt with Suze Orman and the concepts are very similar.
So here are their steps:
Step One-Determine how much debt you actually have. (yep get those receipts and paystubs out there and figure out the interest rates and amount due on all of them).
Step Two-Track Spending and find areas with extra to pay down debt.
Step Three- Learn how to play the Credit card game. (a system of figuring out how much you owe and the interest on each. They recommend calling to try to obtain a smaller interest rate on your account, and paying off the cards/bills with the largest interest rate first.
Step Four-Stop Spending (seems simple enough huh?)
Step Five-Create a monthly spending plan.
Step Six-Take big steps to grow your income.
Step Seven-Prioritize your debts and grow your credit score.
Step Eight-Understand your spending issues and save.
So to learn more about each step, feel free to go to Oprah.com and click on the Money tab for other great articles and more in depth talks.
The main reason I put Oprah’s Debt Diet on my Two cents is because of the pie chart . This chart helped guide me on my first attempt at a budget, and helped me figure out what I was spending on each area and what areas I needed to tighten and what areas I had room for improvement. I sometimes still look back at this chart and reallocate to make sure I’m reaching my goals while paying down my bills too!
2) Dave Ramseys Seven Steps to Financial Freedom-
Now Dave has a slightly different angle to debt. He wants you to have none ever and to continuously strive towards a debt free lifestyle. I totally respect and love this ideal and hope someday to have my paid off home mortgage be my badge of honor. His methods work for many, and he offers classes called ‘Financial Peace University’ to help communities get their finances and debt in order. So here are his steps, and again… check out his website at www.daveramsey.com to find a FP University near you
The Seven Steps:
Step One- Create a 1000.00 Emergency Fund.
Step Two-Pay off all debt using Debt Snowball (a system of paying off the smallest bills first while paying the minimum on each other bill along the way,, and then taking the amount you paid on the smallest bill and adding that to the payment of the second smallest bill…so the payment grows and the payoffs continue.)
Step Three- Accumulate 3-6 months of expenses savings.
Step Four-Invest 15% into Roth/Retirement accounts.
Step Five-College funding savings (after retirement amounts are taken out)
Step Six- Pay off Home early (yay!).
So as you can see they both recommend figuring out what you have in the form of debt and making a plan of action. The plans differ and the goals differ slightly but all in all the idea is to get you closer to YOUR goals.. So pick and choose but make sure to get a plan on board!
