How to Pay Your Bills Off in 5 Years

Paying off your bills and living debt free in five years or less is possible, but it requires discipline and planning. If there is one benefit to the global financial crisis that began in 2008, it forced people to take control of their finances, save money, and spend in a more responsible way. For many consumers, this means becoming debt free.A technique for accelerated debt repayment that has been around for decades but has gained popularity and become known as the "Debt Snowball" technique thanks to financial radio personality Dave Ramsey.

Instructions

1

Stop spending. Period. If a purchase isn't absolutely essential, don't make it. You can't gain traction against your debts if you don't completely curtail your spending. Consider discontinuing all non-essential utilities, such as cable television and Internet access. Use the time you used to spend on television making more money to pay off debts. Free Internet access is plentiful in most cities.

2

Total all your debts. To be completely debt free, you need to include your home mortgage (if you have one), any vehicle or business loans with personal guarantees, student loans, any revolving debts like credit cards, and any other form of long term debt. If you know going into it that you'll need five years to pay everything off, be prepared for a very large number--probably in the hundreds of thousands if you have a home mortgage in addition to all your other debt. Fear not, it can be done.

3

Consider selling assets to reduce debt quickly. If the bulk of your long-term debt is your home mortgage, consider selling your home and renting something more affordable. The fact of the matter is that owning your principal residence is almost always a terrible investment. While there may be emotional advantages to home ownership, in reality a home mortgage is a financial millstone around the neck of the average consumer. At the end of 2009, one in four U.S. mortgages was underwater--meaning that the mortgage balance was higher than the home was worth. Consider freeing yourself from this financial albatross and you'll find yourself much closer to debt-free.

Likewise, sell unnecessary assets and use the proceeds to pay down debt. If you're like most people, your home (especially your garage) is full of "stuff" that you don't really need. Get rid of it. Put the money to better use and buy your freedom.

4

Arrange your debts in ascending order beginning with the lowest outstanding balances. This may seem counter-intuitive because most of us have been taught to pay back the highest-interest rate debt first. Case studies have shown, however, that by retiring smaller debts first a consumer builds momentum and gains emotional support by seeing debts disappear quickly.

When listing your debts, first list the amount, then the minimum payment, then the interest rate.

5

Make minimum payments on everything except the smallest debt. All your discretionary income should go to debt repayment. By making minimum payments on all but the smallest debt, you free up more money to pay off the smallest debt faster. Once the smallest debt is repaid, do the same for the next debt on the list until everything is repaid. Use one of the convenient free Debt Snowball Calculators online to determine the exact amounts that will be needed to retire everything in five years or less.