How To Defeat The Debt Monster
Debt Cures Plan
This is advice I wished I had taken when I was facing the debt monster. It comes from an article by one of the business columnists in our local paper. She is quoting from a post titled “Where to Put Your Money Rgiht Now” by Mark Cuban a technology entreprenuer. The plan is pretty simple. Basically, the post advices pay off your debt now and forget about investing.
Here is the formula – If you have less than $250,000 saved and invested for your retirement and you are carrying a balance on your credit cards, you are in a losing situation. Why? Because credit card fees and interest rates are so high, you lose more money paying down interest charges than you make on your investments. Here is how you get started defeating the debt monster.
1. Write down a list of all money you owe and the interest rate that you are paying on that amount. For example MasterCard $1,000.00 interest rate 18%. Include everything on the list: credit cards, loans from family and friends, mortgage, car payments, student loans, payday lenders, pawnshops, rental companies for furniture, and appliances. Then rewrite the list putting all the debts in order from smallest to largest. When the amounts are similar, put the one with the higher interest rate above the other.
2. If you have money-market funds, take the money out and pay down your credit card debt. Wipe out the smallest balances first and work your way up to the bigger debts. I did have a friend that did this and it really did work for her. If you still have debt go to step 3.
3. Make a list of every stock, bond, fund, whatever you own, and mark what your cost is, the current market price, the current dividend yield on your cost basis, if any, and whether it is in a 401K, fund or brokerage account.
You are supposed to sell anything yielding less than what you are paying in interest rates on your debt and has a current price that is less than what you paid for it. Cuban says “when you call your broker to get the prices, you do not let them give you a bunch of BS about why you shouldn’t. YOU SELL IT!
4. Then you sell the stocks and bonds you have made money on, beginning with the stock/bonds that you have made you the least amount of money on.
And you sell and sell and sell until you’ve got enough money to erase all your debts. Then, cut up all your credit cards, and replace them with one debit card so you can only spend the money you have.
5. Once your credit card is paid off, then you go to your debt list and pick out the next-highest interest rate and start the process all over again until all your debt except your mortgage is paid off.
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