This is the fourth exercise in a series designed to walk you through an entire financial plan. The exercise is embedded in an Excel spreadsheet you can download and save for personal use. You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:
If you refer back to the Personal Balance Sheet you created, you will have already compiled your debt information in the liabilities section. Next to each liability, put an “X” next to bad debt and a check mark next to better debt.[i] Then, transfer the bad debt to the Debt Elimination App available on our web site and customize your Debt Elimination Plan. List the debts in the order in which you will pay them off. If you want to get that ball rolling faster emotionally, take Dave Ramsey’s advice and pay your cards off in order of smallest to largest balances. If you want to save the most in interest payments, list the debts from the largest interest rate to the smallest.
When you make that last payment, celebrate! Take your next month’s payment—a significant chunk of cash flow that you’ll now be able to plough into more generous budget categories and investment for the future—and throw yourself a party. Invite family and close friends who’ve supported you throughout, and enjoy the peace of mind that comes with being debt free.
If you don’t have any Xs on your Debt Audit because you only have better debt, you need not put yourself through a financial boot camp, but deliberate over the debt you do have and consider whether or not a debt repayment acceleration plan may be right for you. If so, use the Debt Elimination App to plan your course of action.
Click HERE to access the app!
[i] There is no “Good Debt”—just “Bad Debt” and “Better Debt.” Bad debt is debt on ANY depreciating assets, including automobiles, but especially things like furniture, appliances and unsecured credit card debt. Better debt is debt on appreciating assets, like homes, education and businesses…within reason. If you’re curious how to differentiate between the two in your specific situation, email me at tim[at]timmaurer[dot]com.