by Brad Homer
There are a lot of programs on the Internet and television that promise to turn your debt into wealth. This may sound too good to be true. The fact is that it’s possible, but many of these programs oversell themselves and seem to promise results that should be represented as the exception and not the rule. Also, turning debt into wealth is a much simpler financial concept than many of these guys would like you to believe; you can learn to do most of it yourself without a high-priced seminar on DVDs guiding you. The hard part is the mental game you have to be willing to master to transform your debt into wealth.
The fundamental concept of how to turn debt into wealth involves understanding the power of compound interest. You then need to make compound interest work for you (investment) and not against you (debt). Interest rates on the debt you carry almost always far exceed the rate of return you can expect on traditional investments. So, the first step for turning debt into wealth is to get out of debt. Usually, some form of debt snowball plan is prescribed.
A debt snowball works like this:
- Prioritize your debts. You can do this by annual percentage rate (APR) or by balance – whatever works for you. You’ll save more money over time by focusing on APR, but focusing on small balances first may give you a psychological advantage.
- Pay fixed payments (above the minimum payment) on each of your debts until one of the debts on your list is paid off.
- Start applying the fixed payment of the paid off debt to the first priority of your remaining debts.
- Repeat until all your debts are paid off
Using this method, you will pay your debts off in a relatively short period of time (usually 3-7 years depending on the amount of your debts.) Then, you can start focusing on investments to get compound interest working in your favor. That’s it in a nutshell. But, to make this work you will have to tackle your attitudes and habits about money, debt and investing for the future. Persistence and focusing on specific goals will help you get there mentally. Don’t give up and don’t get discouraged if you don’t do as well on your plan as you’d like – keep trying.
To get started generating a good rapid debt repayment plan (or debt snowball), you will likely need some help. Many free and inexpensive programs and tips are available on the Internet to help you do just that. Create a plan and stick with it. When you’re out of debt and ready to start investing on a large scale, carefully weigh your options about where and how to invest – there’s really no substitute for professional advice when you’re ready for this as everyone’s situation is different. Hopefully this article has given you the basics to understand how transforming debt into wealth can be a practical and realistic goal. Now, go build a plan to get out of debt, start investing and get compound interest working for you!
Millionaire 2020™ can generate a rapid debt repayment plan for you and get you on the road to good personal budgeting.