One of the most common challenges we discuss with potential clients is how do they pay off their debt. This is one of the main goals they list in our free consult. There are several variables that contribute to this strategy. Here we are going to break down the different variables.
Step by Step - Paying Off Debt
The first step obviously would be to have your finances in order. We create a very specific system utilizing Quickbooks and Excel to monitor all the spending and to get a "Birds Eye View" of the debt, income and expenses.
In one of the spreadsheets, we outline all the accounts with all their pertinent information so the client can make good decisions on how to eliminate the debt step by step with our guidance.
The next step is taking extra income (when it comes in) and applying it to the debt in one of two ways. This is entirely decided upon by the client. Either put it towards the smallest amount so you can pay it off the fastest and have a win on eliminating a whole card and payment OR put it towards the card with the highest interest rate. We allow the client to decide which makes them feel more accomplished and happy.
Next, they can take the payment associated to that paid off card and apply it to the next one. This is what Dave Ramsey suggests. You can also utilize that money in a different way and wait for another chunk of extra income to come in and pay off another card.
Another strategy that helps in addition to getting finances organized, is to figure out ways to make more money to put towards debt. Sometimes we brainstorm with our clients on new products, new services, raising rates, not spending so much in a certain area, selling something they have been holding on to. This is all part of our CFO Consulting we offer that includes our bookkeeping (when you select the service that includes that).
When you start getting strategic on how you can create more income, then you can also pay off your debt faster by the increase of income flows.