Debt is a hard thing to live with, but we all have it and deal with it everyday.  Sometimes it is manageable, sometimes you feel like you can barely keep your head above water and unfortunately many times you feel like you are drowning in it!

Is there a way to get out of debt without getting a second job or having to increase your income in some way?  Can the average person take his or her current income and pay off his or her bills in a matter of a few years, including the car and mortgage payments?

The answer is YES!  You can do it without having to cut out all of your fun and extra-curricular activities as well.  Now, you may need to cut down on going to the movies or going out to eat, but you will not have to stop altogether.  It is a matter of putting together your plan and then sticking to it!

The process is fairly simple, most people just don't realize it.  Anyone can get started right away, including YOU right now!  Here is what you need to know:

1. What is your total net income?
2. What are your debts total balances?
3. What are your minimum monthly payments?  (only what is required by your lender/creditor to pay each month, not what you may be paying extra)

Okay, let's begin.

The first thing you need to do is take a percentage of your NET income (a good beginning can be 5%) and write this amount down at the top of a blank sheet of paper.

Next, write down each of your debts (not including utility biils, insurance payments, property taxes, etc.) in a column at the left side of your page.  Beside each debt, write down your total balance and then your minimum monthly payment.

Once you have all of these down, divide your total balance by the minimum monthly payment.  Write this amount next to each debt.  Taking the debt that has the shortest payoff number, number this debt 1.  Taking the next shortest payoff, number this debt 2 and so on until each debt has a number next to it.  These numbers indicate the order in which you will begin to pay off your bills.

Now, here is where your 5% comes into play.  For debt #1, take the minimum monthly payment and add it to the 5% figure.  Divide the total balance by this new amount to get the total months it will take to payoff the debt.  For debt #2, you will take the minimum monthly payment plus the 5%, plus the minimum monthly payment of debt #1 (since it will be paid in full) and add them together.  Again take the total balance and divide it by your new monthly payment to figure your total month to payoff.  Do this with each debt until you are finished.

Once you have completed this, add up the total months to pay off your debts to figure an estimate of how long it will take you to pay off all of your debt.  See the example below:

We will use an auto loan as the first to payoff, the Visa, and so on for this example.

Let's say your net income is $1500.00 per month.  If you take 5% of that, your amount to pay extra on your debt will be $75.00

Taking your first debt to payoff, which in this case is the auto loan:

$356.00 (minimum payment) + $75.00 (extra payment) = $431.00

Your total balance on this loan is $13000.00.  Divide this by the $431.00 to get 30 (which is the amount of time in months that it will take to get this loan paid in full by paying the additional $75.00.)

Take your next debt (which is the Visa bill) and apply the same principal:

$153.00 + $75.00 + $356.00 (apply your payment from the auto loan to this bill as you no longer have the auto loan to pay) = $584.00

Total balance of $6300.00 divided by $584.00 = 11 (months until Visa is paid in full)

Mastercard:

$96.00 + $75.00 + $153.00 + $356.00 = $680.00

Total balance of $5266.00 divided by $680.00 = 8

Mortgage:

$325.00 + $75.00 + $96.00 + $153.00 + $356.00 = $1005.00

Total balance of $43000.00 divided by $1005.00 = 43

Add these months together:  30 + 11 + 8 + 43 = 92

This is the approximate time frame it would take you to pay off ALL of YOUR debt including your home!  92 months equals about 8 years!  Can you imagine being debt free in eight years?  That means that you would have a home that is free and clear in a matter of eight years instead of thirty!  Think of all the interest that you can save.

If you apply the above formula to your financial situation, you can be debt free without getting a second job or without working overtime.  Imagine the time you can spend with your family and friends instead of working.  Of course, if you take a higher percentage of your net income, you will pay off your debt faster!

This is something that anyone can do based on simple math.  The trick to remember is to NOT use your credit cards.  In fact, cut all but one up!  Get rid of them and just keep one in case of a major emergency.  Once you have your debt paid in full you can start building your emergency funds and retirement funds.  How about a college fund?

Remember this fundamental rule:

PAY FOR CURRENT EXPENSES WITH CURRENT INCOME!

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