Privacy   |    Financial   |    Current Events   |    Self Defense   |    Miscellaneous   |    Letters To Editor   |    About Off The Grid News   |    Off The Grid Videos   |    Weekly Radio Show

A 20 Percent Payment Plan For Debt Control

Debt is an ongoing concern for millions of Americans, including the nearly 50 percent who are considered to be financially fragile.  From underwater mortgages and overwhelming student loan debts to maxed-out credit cards and payday loans, dealing with debt is something that touches almost every American family, and it seems to be spiraling out of control.  Fortunately, there is a way to bring financial discipline to the family balance sheet and regain control of overall debt levels by committing to a carefully structured limit on total debt.

Get Honest About Debt

The first step is to get honest about overall debt levels and the status of each kind of debt that you are responsible for repaying.  Ignoring debt doesn’t make it go away, and not all debts are created equal.  You will want to find out every debt obligation that the family has – including “personal” or “private” credit cards – and whether these debts are current or late.  Write down due dates, interest rates, and key deadlines.

Once you have everything accounted for, it is time to total up the amounts due.  What is your total monthly payment for all kinds of debt?  With this number in hand, you are ready to move forward with becoming debt free or at the very least regaining control of your debt.

The 20 Percent Payment Plan

The 20 percent payment plan is based on the financial planning advice of George S. Clason, one of the twentieth century’s most practical financial advisors and writers.  He felt that all income should be divided into ten equal pieces.  One piece was for saving, and two pieces were to be dedicated to paying down any outstanding debt.  The remaining amount was designated as the funds available to support ongoing expenses, including church tithing, housing expenses, and discretionary spending.

Total up your current income, and divide it into ten parts.  Compare the total of two parts of your income (20 percent) to your total monthly payment due on your debt.  If your 20 percent is greater than your payments, congratulations.  You’re in good shape to start paying off your debts and get out of debt completely.  If your total payments owed exceed 20 percent of your income, it is time to look at restructuring your debt, taking on additional work, or shifting your spending dramatically to restore your family’s balance sheet to good health.

Evaluating Debt

Look back at your total debt list.  What kinds of debts are in those totals, and what interest rates are you paying?  Committing yourself to living within your means (i.e., on the 70 percent of your household income not going to savings or debt) means that these numbers are as high as they will ever be, and you have to evaluate how you are going to bring these numbers down once and for all.

Start with high-interest debt.  Even if the dollar amounts on these debts are smaller than other kinds of debt that you have, they have higher carrying costs (the cost to maintain a balance) than low interest loans.  Thus, eliminating these debts first reduces your total debt burden faster.

Remember that help is available.  Student loans have forbearance programs and housing loans can be modified.  Debt counseling and credit support services exist because so many people are struggling – don’t let pride prevent you from taking advantage of useful programming as you rebuild your financial health and sound money management habits.

Every time money crosses your palm – paychecks and gifts – put 20 percent on your debts.  Mind due dates to avoid late fees, but make a habit of making a payment every time you get money to build the financial discipline to pay off debt regularly.  It will quickly become a normal routine and help you feel more in control psychologically as well as fiscally with your debt.

If this is totally unsustainable and your debt is overwhelming, consider major changes to bring your debt levels under control.  A home is a beautiful thing, but not when it represents a debtor’s prison due to a crippling mortgage.  Credit cards are ultimately unsecured debt that can be discharged in bankruptcy.  The adage “Render unto Caesar that which is Caesar’s” may be etched firmly in most of our minds, but regular periods of debt forgiveness and fresh starts are also woven into Biblical teachings.  The guilt and pain of foreclosures and bankruptcies are life lessons, not life-enders.  Your long-term goal is financial stability, and this often involves short-term pain when debt is an issue.

Debt is an ongoing issue for millions of American families, but it doesn’t have to an eternal issue for any of us.  With smart money management and bringing debts down using the 20 percent plan, it is possible to lower your total debts and take back control of your financial health once and for all.

©2011 Off the Grid News

© 2008-2014 Off The Grid News

3 comments

  1. So how much revolving debt should I have? Should I pay off all my debt?

  2. re: “Start with high-interest debt.” Is correct. Here is an easy step you can add to this formula to speed up your debt reduction:

    Out of your available $ to put towards debt each month, list each debt, the balances and interest. List them in order of higher interest first, then if need be, lowest balance next, etc. As you pay off each debt, re-allocate the monthly amount you used to put towards a debt into the next debt, and so on. As you get each raise at work, try to put all of the raise into debt & savings, so you do not get used to the extra cash. Eventually, you will be able to re-allocate all of your debt $ and raises towards savings, retirement planning, etc.

    example:
    take-home pay =$2,500
    20% for debt = $500
    29% credit card = $200
    8% car loan = $200 (usually a fixed cost)
    5% student loan =$100 (easiest to re-finance if need be)

    Let’s say you pay off the car first, then you get a 100/mo. raise. Then you can go:
    29% credit card = $350
    5% student loan =$200
    extra into savings = $50
    or
    29% credit card = $500 (This option is much cheaper in the long run!)
    5% student loan =$100

    It works. I got myself out of student loan default, earned a great credit score again, then got out of credit card debt completely. I’m now putting 37% of my net all into savings, and 10-12% into retirement accounts.

  3. southern patriot

    So the conversation over breakfast went like this,”Run up your charge cards and buy what you need to survive and forget about paying it back”. the dollar is not worth a thing any way. I listened but I did not comprehend. A debt is a debt and I was raised to pay what I owe. Have things changed that much or was this guy right? I could use a lot of things, but I still believe in paying as I go.This guy goes on and states that we don’t have that much time and we better get what we need now, before the SHTF. So what say you Off the Grid readers is this a smart move or a bunch of hooey. Appreciate your feed back. SP

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>