Step One in Destroying Debts: Creating a Goal


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Goal setting is the single most important thing you can do to reduce debt.

Note: I just published my third book, Life or Debt 2010, now available at bookstores nationwide. To go along with it, I’ll be doing at least 20 news stories as well as hosting monthly live webcasts where I’m inviting everyone to participate with advice, tips and motivation, all with the goal of destroying as much debt as possible this year. Below is the first installment.

Hey, let’s go for a ride! Where do you want to go? Nowhere? Ok, we’ll just drive around aimlessly and hope we accidentally end up somewhere interesting. Hop in!

That’s the way most people plan their lives, financial or otherwise. They may have a vague idea of a destination, like paying off debt, for example. But they’re not really sure how to get there or how long the trip will take. So they waste time driving in circles and wondering, “Are we there yet?”

If you feel like you’re not getting where you want to go, this could be why. Because if you don’t know what your specific goals are, you’re not likely to achieve them.

Get started

If you want to live debt-free, step one is making it a goal. A goal is a destination. You create it by describing where you intend to go as specifically as possible and getting everyone who’s going with you on board. You visualize your goal, then define the exact steps required to achieve it. You divide those steps into manageable tasks. Then you follow through until you arrive. If you don’t do each and every one of these steps, you’ll never reach your destination.

This is explained in detail in my book, but here’s a condensed version.

Name your destination

If your goal is to live a debt-free life, write it down. Put reminders on your bathroom mirror, on your dashboard, on your computer screen: keep it in front of you as much as possible. And when you look at that goal, take the next step:

Visualize it

Visualize your goal: what will your life be like when you have no debt payments? What will you do with all that extra money when you don’t have any credit card payments? Car payments? Mortgage? When all the money that used to go to lenders is now going into a big, fat bank account? How will your life be different? Feel the freedom you’ll experience.

Do that every time you see your goal: especially when you first wake up and just before bed.

Get everyone on the bus

Unless you live alone, your goals will likely affect those you live with. So if your goal is paying off debt, for example, you’ll most likely need the cooperation of your family. After all, it doesn’t do much good if you’re trying to pay off debts as your husband is out new-car shopping. So make sure your goals are shared and the people who can affect the outcome endorse them.

List the steps to achieving it

Obviously, to achieve a debt-free life, you’ll have to pay off all your debts. So start by listing them all, then decide in which order you’ll order you’ll pay them off. How? In my book, I suggest ranking your debts for payoff by starting with the one with the fewest payments left. To do that, list all your debts. Divide the amount owed by the monthly payment. That gives you the number of months it will take to pay them off. Like this:

Debt Current Balance Minimum Monthly Payment Months to Payoff (Column 2 Divided by Column 3) Debt Rank
Visa Card $2,239 $45 50 2
MasterCard $1,845 $37 50 2
Car Loan $7,500 $212 35 1
Student Loan $11,700 $182 64 3
Mortgage Loan $120,000 $917 131 4

So in this example, the first debt I’ll pay off is the car loan. Then the credit cards, the student loan and finally the mortgage.

Now, in addition to having an overall goal of a debt-free life, I’ve got a more digestible, definable, shorter-term step: to pay off my car loan. I’m going to focus like a laser beam on that debt, applying as much extra money as I can on it, until it’s gone. Then I can move on to the next step of paying off the Visa or MasterCard.

Of course, there are other steps I’ve got to take, like finding the extra money to destroy these debts: in the book, I ask that you set aside 10% of your gross monthly income to do it and show you specifically how to go about finding that money. We’ll be going more into that in coming news stories and blog entries. But in the meantime, start now by setting a goal and ranking your debts for payoff.

One more word on debt ranking: the reason I rank debts by fewest payments rather than highest-interest first is that I’m going to use old debt payments to help pay off debts further down the list: it’s a system called snowballing. For example, if I apply an extra $500 a month to my car payment, it will be paid off in about 10 months rather than 35, and I’ll use the $212 I’ve freed up to apply to the Visa or MasterCard.

But if you’d rather pay off higher interest debts first, that’s ok. Just decide and get started!

Following Through

And that leads us to the last step in goal realization: following through. Goals like living debt-free take time, so long-term follow-through is critical. That’s one reason you keep your goal in front of you, visualize it as often as possible, and track your results often.

Bottom line? When you finance with debt, you’re wasting massive amounts of money: money you should be using to create a better life. So paying off debt is definitely a worthy goal. But don’t just wish it; make it real: write it down, plan it out, and make it happen.

Stacy Johnson

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