When I was deep in debt, it was very overwhelming and very difficult to create a debt elimination plan. I didn’t know if I should pay the highest interest rate first, the lowest balance first, or use David Bach’s DOLP payment method (dead on last payment). It’s quite confusing when you have all of these gurus that tell you different ways to pay off debt. I’ve come up with a simple way of finding out which debts should be paid off first based on your personality type.
THE GET OUT OF DEBT NOW PERSONALITY
If you are the type of person who is concerned with getting out of debt ASAP and saving as much as you can on interest rates, then paying off the highest interest rate credit card first makes the most sense. This is especially important if the credit card has a higher balance than other credit cards in your debt elimination plan.
For the “get out of debt now” personality, create your debt elimination plan by listing the amounts owed and the interest rates associated with each debt. Pay the minimum payment on all debts except the highest interest rate debt. Pay as much as you can on the first priority debt. Adding just $200 a month to a debt can save you years and even thousands in interest.
THE QUICK WIN PERSONALITY
If you are the type of person who really enjoys and is motivated by “quick wins” then paying the lowest balance first is the method for you. Paying off that first debt gives this personality type a sense of accomplishment and it motivates them to keep going. Create your debt elimination plan by listing your debts from smallest to largest, and focus your efforts on the lowest balance. Once you have paid that first debt off, move to the next debt and pay it off faster by using the snowball method.
THE STEADY AS HE/SHE GOES PERSONALITY
If you’re the type of person that accepts the debt situation you’re in and wants a manageable yet achievable debt elimination goal, then the DOLP method is for you. The DOLP method was invented by David Bach and is a calculation where you take the balance of the credit card and divide it by the minimum payment. The result is what David Bach termed the DOLP number. Do this for all of your outstanding debt and list all debts by their DOLP number, from lowest to highest. Focus all of your efforts on the debt with the lowest DOLP number. When that first debt is paid, focus on the next lowest DOLP number, but make sure to use the snowball method.
QUICK TIPS
Regardless of which personality type you identify with, make sure to use the debt snowball in each method. The debt snowball basically means that once you have paid off a credit card, use the monthly payment from that first debt and apply it to the next in line credit card.
Track your progress. Create a list of all of your debts and order them based on your personality type. Put this list on your refrigerator and each time you kill off a debt, cross it off!
Debt is so easy to get into but is so difficult to crawl out of it. Create your debt elimination plan and stick to it. Persistence pays off!
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What is your Get Out of Debt Personality?
About Peter Serrano