Millions of Americans are stuck in a debt rut. They begin each year with holiday debt and good intentions about getting rid of it. Too often, the good intentions quickly fade but the debt sticks around.
If you want to escape this rut, try something different. Instead of blindly trying various budget techniques hoping they’ll work this time, reverse engineer the problem.
Reverse engineering is a process that looks at the end result and works backward to figure out the specific steps that led to it.
So, if your goal is to get out of debt, determine first what payments it will take to pay off that debt within a specific period. Then work backward to figure out how to find the money necessary to meet that goal.
The idea is to take the guesswork out of the process and design a plan you can follow confidently step by step. This article is about how Frugal Gnome can help you do that.
Step 1. Set your own debt-free date
One of the reasons debt seems to drag on so long is that lenders design it to do exactly that. The longer you owe, the more interest you’ll pay. Good for them; not good for you.
Credit cards in particular are designed to prolong debt. Your minimum payment is set low so your new charges are likely to be bigger than what you pay off. That means your balance is more likely to go up than down.
To counteract that, you need to set your own repayment schedule based on when you want to be free of debt. To make it a priority, try setting a goal to get out of debt within 12 months. Here’s a quick calculator to help you figure out just how much you’d need to pay each month to accomplish that. Give it a try!
(The calculator can be used for a single loan or credit card debt, but it’s just to get an idea of what your monthly payment would need to be given the amount of debt you’re repaying at a certain interest rate.)
Loan Payoff Calculator
If the amount surprises you or seems unattainable, don’t worry. Try different payback periods to see what feels right for you. Or you can change the desired monthly payment if you have a specific amount in mind.
But don’t worry even if it still seems out of reach. Frugal Gnome’s method and tools can help you figure out where you’ll find the money for those payments.
Step 2. Find the money to meet your debt-free goal
Of course, for households struggling with debt, there usually isn’t much money to go around. And this is why many give up, because it’s so hard to see how budget choices combine to free up extra money.
But Frugal Gnome makes reverse engineering easier. As a subscriber, you’ll have access to our unique tools that let you model your finances so you can see how different budget changes play out.
If you truly can’t find enough money to reach a 12-month payback window, that’s okay. You can easily rework the parameters to fit your situation. It’s reverse engineering to meet the goal instead of a date. In that case, you use the amount of money you have to attack the debt knowing that you are starting to make a dent. It will take longer this way; but with persistence, you can conquer debt once and for all.
When you find a scenario that works, you save it to your dashboard as action items to follow step by step. The system even sends a snapshot of your scenario to your email. Then it’s a matter of tracking your progress as you carry out your custom action plan.
Step 3. Walk the easiest path to your destination
Nobody likes to have choices forced upon them. And that’s one of the key benefits to having a Frugal Gnome subscription. Your action plan is created from your own ideas for how to reach the goal given your specific situation.
For example, one person might choose a more Spartan lifestyle for a year, spending less on things like dining out and entertainment in order to devote more money to reducing debt. Someone who’s more of a work-hard-play-hard type might choose, instead, to take on extra work to raise the additional money.
That freedom to choose your own path can make the journey more pleasant for you. But the Frugal Gnome Debt Path offers much more help than just great tools. The entire path is designed with tips and guides to help you get past the pain points where motivation wanes so you can finish the job as you planned.
Starting now brings your debt-free date one day closer
Whichever path you take toward paying down debt, it will be easier the sooner you start.
As you work on repaying debt, you’ll also be able to track your progress. You’ll watch your financial strength improve as you conquer debt. This is the other side of the debt mountain, where you can start to dream again.
Why the urgency? Consumers are fast approaching the point of no return
Why make paying off debt a near-term goal? Because a lack of urgency has consumers careening toward a point of no return.
According to data from the Federal Reserve Bank of New York, both overall consumer debt and credit card debt have reached all-time highs. Evidence that this much debt is reaching a breaking point for many consumers can be seen in the delinquency rate on credit card debt.
The percentage of credit card balances 90 days or more overdue has risen for five straight calendar quarters and is now at its highest level in over a dozen years.
Delinquency rates measure overdue payments; but default rates measure debts the borrower is never able to repay. A recent report noted that default rates had risen to their highest level since 2010.
Adding to the concern is that the last time delinquency and default rates were this high, the economy was still trying to shake off the after-effects of the Great Recession. Today, delinquencies and defaults are rising despite ten straight calendar quarters of economic growth. Imagine how much heavier the debt burden will be the next time the economy weakens.
Want to get free of debt in the next 12 months – or sooner? It’s up to you!
Take the next step: Start your subscription
There is no way around it: Debt is working against you. But you can change the direction with a simple decision to start. Every step you take to bring debt under control is empowering. And using the Frugal Gnome method lets you design the path on your terms, using your numbers so you know how it is going to work.
Good results ahead
Eliminating debt does more than just restore the extra payments to your discretionary income. It also eliminates interest charges, leaving you with more wealth to use for the things that really matter to you. But one of the best outcomes of getting rid of debt is relief – relief from the stress, the struggle, and the worry.
For a limited time, a $0.99 monthly subscription gets you unlimited access to three pathways on the Frugal Gnome site, including all the articles and tools you need to get out of debt. Please join us on the journey to build fantastic finances. We’re rooting for you!
