How to Become Debt Free Without Going Bankrupt

Bankruptcy was not an option for me. My employment conditions did not allow it. So how do I get out of this financial nightmare, without losing everything? There were no separate pots of cash to pay the bills or equity in the property to release some vital funds! I had to come up with a plan using the funds I had to clear the debt. This was the first time I had really taken stock of everything, it looked pretty bleak. To start with I had to stop relying on credit cards to make up for the shortfall, so all credit cards bar one were cut up. The remaining one was left for emergencies, it was suggested that I put it in a metal container, fill it with water and then freeze it!

The rationale being, that if I needed it, I would have to take it out of the freezer, wait for it to defrost and because it was in a metal container, I could not zap it in the microwave! By the time it had defrosted, the emergency may of been sorted by other means. Ok, so now I was down to a cash only living, it seems like I had gone back in time, but my debit card offered me my cash alternative.

Next, I needed to organize my outstanding debts, into priority. The method for this, was as follows:

1. Outstanding Balance 2. Monthly Repayments 3. Divide 1 by 2 4. List in lowest months remaining first.

For example:

1. Outstanding Debts Mortgage – £ 250,000 Car – £ 15000 Personal Loan – £ 11,000 Credit Card – £ 9,000

2. Monthly Repayments Mortgage – £ 1400 Car – £ 360 Personal Loan – £ 250 Credit Card – £ 90

3. Remaining months Mortgage – 178 Car – 41 Personal Loan – 44 Credit Card – 100

4. List in ascending order Car Personal Loan Credit Card Mortgage

Now I had my list of debts in ascending order, the plan was to gradually work my way through them. Take the top debt, keeping the monthly payment the same, with the remaining debts make minimum payments only. This should give you some extra cash. If it does not, no problem, this strategy works regardless. For this example, we have released an extra £ 100 per month from making the minimum payments on the remaining debt. Which gives us a payment of £ 460 each month for the Car Loan. Car loan goes from 41 months outstanding to 32.

Once the car loan has been settled, we now have an extra £ 460 to add to the monthly payment for the Personal Loan. The outstanding balance of £ 3000 (only 12 months remaining) will be paid off in 5 months. So far in 37 months we have paid off the Car Loan and the Personal Loan. We now have a monthly payment of £ 710 to add to the Credit Card monthly payment of £ 90. The outstanding balance will be paid off in 11 months. Total months so far = 48 months. Now we move onto the big one, the dreaded mortgage! The current monthly rollover payment now stands at £ 800, added to the mortgage payment of £ 1400, giving us £ 2200. The mortgage will be paid off in 113 months time.

Total time to become debt free = 161 months.

Total amount of interest saved = Mortgage £ 23800 Car £ 3240 Personal Loan £ 1750 Credit Card £ 4680

Total £ 33,470

In 13 years time, you could be totally debt free, just by increasing your monthly payment by £ 100 based on the example above! No need to go bankrupt, take out any high interest debt consolidation loans or take on extra jobs.

Source by Steve Thornton

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