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How to get out of debt and change your life forever.  Use our “payment steamroller” process and you will quickly become debt free.

I just wrapped up a conversation with a friend who is unfortunately buried in debt.  The good news is that he asked the question:  how do I get out of debt?  And that’s a question many of us have because out of all the things we’re taught while growing up, we’re never truly taught how to manage debt.  Well, the better news is that it’s never too late to learn how to get out of debt.  And by using the “payment steamroller”, it’s relatively easy to quickly become debt free.

But First, A Little Background

How many of you didn’t know a thing about the interest on a loan UNTIL you got your first loan?  I’m willing to bet, and I’m not a betting person, that many of you had no clue about loan interest owed to the lienholder until you got your first loan.  Me neither; I learned a lot from that first loan over 30 years ago.

But you need to understand loan interest because it’s the major factor blocking you from getting out of debt and changing your life forever.

Loan Interest Makes It Take Longer to Get Out of Debt

And that’s because you’re not just paying off the principal of the loan, or in other words, the amount of money you borrowed.  You’re actually paying off the principal of the loan PLUS interest.  And it’s that interest component of your loan that adds so much to the cost of the loan, and in turn adds to the amount of time it’ll take to pay off your loan.

Still don’t believe the interest on your loan makes it take longer to pay off your loan?  Then try this little math exercise:  divide your loan dollar amount by your monthly payment.  The number displayed on your calculator is the number of months it’ll take to pay your loan off at a 0% interest rate.  And I’m sure that number is smaller than the original term of your loan.

The Two Parts of Your Monthly Payment

Every loan has a payment that you make to the lienholder (the lender that lent you the money for the loan).  And every payment has two parts:  the part that goes towards your principal balance, and the part that goes towards interest. 

What is Loan Interest?

Interest part what?  Interest is how the bank makes money because you borrowed money to make your purchase.  Here’s a funny way of thinking of it that I have to give credit for to another friend of mine.  We were joking back and forth one day about interest and bank interest rates when somebody else in the room asked: “what’s the interest rate.” 

And my friend replied:  interest is what you pay when you can’t afford to pay cash.  Ouch!  Not exactly the classic definition of the word “interest.”  But when you think about it that way, it really hits home hard. 

So, if you want the answer to how to get out of debt, you need to start focusing really hard on the interest component of every payment you make to the lienholder.  Because again, it’s that interest component that’s adding to the length of time it will take you to get out of debt.  And once you learn how to make that interest component get smaller and smaller, you’ll be well on your way to quickly getting out of debt.

A Picture’s Worth a Thousand Words

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Now take a look at the same loan amount, but at a higher interest rate of 9.79%:

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Of course the payment went up because the interest rate is higher.  But what I really want you to focus on is how the principal component of each payment got smaller.  And also how the interest component of each payment got bigger!  And that’s because at a higher interest rate, more of the payment is made up of interest. 

The numbers in the interest column are why it takes so long to get out of debt.  You may think that every time you make a payment to the lienholder, you’re reducing the amount you owe the lienholder by the amount of the monthly payment.  That’s not how it works.

So, if you want to get out of debt and change your life forever, then you need to do whatever you can to pay your loan off as quickly as possible.

And Now for Some Good News

Many decades ago, the government made it easier to pay your loans off early by requiring FDIC bank loans to be simple interest loans.  And by definition, a simple interest loan accrues interest daily on the unpaid balance AND THE LOAN CAN BE PAID OFF EARLY WITHOUT ANY SORT OF PENALTY.

That last part is really important, because it sure wasn’t that way ages ago when I got my first loan.  All that matters is that’s the way it is NOW. 

As a result, all you have to do is make up in your mind that you want to get out of debt early.  Once you’ve made that decision, it’s time to use the “payment steamroller” to help you get out of debt.

Use the “Payment Steamroller“ to Get Out of Debt

I’d like you to imagine your pile of debt just sitting out in the middle of the road.  Now imagine a steamroller.  You know, that thing that crushes stuff it runs over into oblivion.  Okay, now imagine using your payments, by stacking one on top of the other, to create a bigger and bigger “payment steamroller” to crush your debt.  Hopefully that visual makes sense.

Here’s How to Create and Use Your “Payment Steamroller”

Follow the steps below and the “payment steamroller” will get you out of debt and change your life forever.

Step 1

Organize your debt from the smallest balance to the highest balance, leaving your mortgage for last.  If you have two identical loan amounts, then put the one with the higher interest rate before the one with the lower interest rate.

Here’s a sample list of loans, organized from smallest to largest:

$5,000 rolling, unpaid credit card balance at 19.74%

$5,000 student loan at 4.57%

$10,000 student loan at 4.78%

$21,000 auto loan ta 8.66%

May look a bit like the debt snowball, but those two words together don’t make any sense.  Take a look at the definition of snowball, and you’ll understand why:

According to Merriam-Webster, the intransitive verb definition of snowball is:

“To increase, accumulate, expand, or multiply at a rapidly accelerating rate.”

That kind of makes it sound like your debt is getting bigger.  And that’s exactly the opposite of what we’re trying to accomplish.  Enough said.  “Payment steamroller” just makes a lot more sense. 

Step 2

Enroll all of your loans in the bi-weekly payment plan.  That way, as you’re waiting to get to the loans further down in your list of loans, you’re still be on schedule to pay them off early.

Step 3

Do a little family budgeting.  You’re going to cancel and/or sell all sorts of stuff you really don’t need. 

Here are some suggestions.  Save $24/month by making your coffee at home before you go to work instead of buying your coffee on the way to work.  Save $100/month by packing your own lunch instead of buying your lunch while you’re at work.  Save $17/month by purchasing bottled water at a place like Sam’s Club instead of buying bottled water at work.  Cancel Direct TV and save $60/month.

Get the idea?  Just that short list of money saving options will save you $201/month. 

Next, it’s time to sell everything you do not need that’s just laying around the apartment or home.  Do you have an extra car or truck that you hardly ever use?  Sell it.  Have an extra TV, clothes you never wear, tools you never use, furniture you don’t need?  Sell them. 

Be aggressive here.  If you don’t absolutely need it, then sell it!  Remember, the goal is to get out of debt and change your life forever.

You should have been able to sell some of your stuff for cash.  Great!  Now take that cash and deposit it in the checking account of your partner bank.  Next, call the lienholder of your smallest loan and tell them you’re going to make a principle only payment from your checking account.  They should be able to very quickly either tell you how to do that on your phone or computer, or just process it over the phone.

Super, you’re on your way of getting out of debt!

Step 4

Fire up your “payment steamroller” and accelerate the process of getting out of debt. 

Take the monthly savings from all the stuff you have cancelled or stopped doing, and apply that monthly amount to the monthly payment of your smallest loan.  Let’s keep the dollars clear in your mind and refer to that monthly payment as your “savings payment.”

Next, just call the bank that manages our bi-weekly payment program and tell them you’d like to increase the bi-weekly payment of the smallest loan by that amount.

Then ask them what the bi-weekly payment would be if you paid that loan off in one year.  Really stretch here.  If you can make that bi-weekly payment, great.  If you can’t, no problem.  You’re still on track to pay that loan off much earlier than before.

In order to protect your identity, they’ll ask you to confirm via email what you just asked them to do.  Don’t hang up the phone!  Just tell them to wait on the line as you type, then send them the email confirming that you’d like your bi-weekly payment to increase by the amount you both agreed to. 

Congratulations!  You just created your “payment steamroller” by combining the current monthly payment of that loan with your “savings payment.”  And you’re well on your way to getting out of debt.

Step 5

Now speed forward in time with me and imagine that first loan is paid off. 

The next step is to take that payment you just finished (the smallest loan payment, plus the “savings payment”, plus anything additional if you were able to pay the loan off in one year) and apply it to your next biggest loan.

Now you’re really putting your “payment steamroller” to work.  Can you see how it’s going to help you get out of debt and change your life forever?

As with the first loan, call the bank that manages our bi-weekly payment program and tell them you’d like to add the payment you just finished making to the payment of your next biggest loan.  As with the first loan, ask the bank what the bi-weekly payment would be if you paid that loan off in one year.

Do you see how this works?  Hopefully it’s making more sense.

Just to make it a bit clearer, let’s look at some numbers of sample loans and payments to see how it works.  Sometimes it’s easier to see how it works than to read how it works!

Example of the “payment steamroller”:

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Summary of How to Get Out of Debt

Isn’t it amazing to see how quickly the “payment steamroller” will get you out of debt?  Just think about it for a minute.  If you hadn’t done anything, those student loans would have taken you about ten years to pay off.  And the car loan would have taken you six years to pay off.

By using the “payment steamroller”, you were able to pay off ALL your loans in less than six years, and save over $30,000!

That folks, is why the “payment steamroller” is the absolute best way to get out of debt!

Conclusion

You absolutely can get out of debt and change your life forever.  It’s just a matter of having an effective, easy to follow plan.  And then having the discipline to stick with the plan! 

You have both.  Start getting out of debt today and get on the path to personal and financial freedom.  You can do it!

Next Steps

You’ve made it this far!  Keep up the good work.

Once you’ve paid off all of your debt, you’re ready to move on to Stepping Stone #4:  Credit Cards.