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Before you make a plan to pay off all your debts, you should control them. You must not rely on credit cards to pay off the monthly installments in order to develop an effective debt repayment plan.
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If you are not ready, consider selling some assets to reduce the debt to a manageable level. Then, you can follow these five steps to make a plan to pay off your debts.
- 1. Make a list of all debts, sorted by debt size: the smallest debt is at the top.
- 2. Calculate the total repayment amount. Then add 1% of your monthly income to this figure, which we call your “repayment incentive fund”.
- 3. Pay off all your monthly loans every month, and then use the “repayment power fund” for the minimum repayment. With the “repayment incentive fund”, the minimum loan will be repaid quickly, perhaps in less than a year.
- 4. After paying off a debt, add the amount originally used to repay the debt to the “repayment power fund”. It will become more and more powerful!
- 5. Adhere to monthly payment of bills, and use the “repayment power fund” to repay the minimum amount of repayment until it is fully repaid. Then, add the amount originally used to repay the installment to the “repayment power fund”. If this continues, your “repayment power fund” will become stronger day by day until all your loans are paid off.
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This plan will enable most people to pay off their debts, including those who need to pay off their housing loans within ten to fifteen years.
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Remember not to add new debt while following this pattern. Even when focusing on debt elimination, most people under the age of 50 still expect their income to keep growing to improve their living standards. People over the age of 50 do not mind the slowdown in income growth. At that time, children have grown up and left home, and their spending has also decreased.
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The sooner you pay off your debts, the better. If it makes you feel miserable to use too much income to pay off debts, imagine how comfortable you would be without debt. What will you do when you pay off all your house and car loans and have no debt?