The Best Way to Get Out of Debt In My Humble Opinion

by Rocket Finance

I think most of us understand the basic personal finance platitudes, even though we don’t always apply them:

spend less than you make           save for emergencies         make compound interest work in your favor        pay off credit cards every month        comparison shop        Roth and Traditional IRA’s are both okay      time is the key element to investing      every little bit counts      etcetera, etcetera

But once you have messed up all of the afforementioned pieces of advice, as many of us have, what is the best way to get out of debt? There are a lot of methods floating around out there: debt considation, sale of assets, bankruptcy, home equity loan, lots of companies offering to debt counselling for a fee, and more. Some combine debt consolidation with counselling and accountability. Some reduce debt by bargaining with creditors.

This is not a paid endorsement and this link to their site will be a surprise to them, but I think that Realistic Financial is a great way to get out of debt. I have not personally used their services, but know a great many folks who have. My debt problems are not quite bad enough to go to Realistic. Realistic combines debt counseling with a system that professes to get a family completely out of debt in six to 12 years.


Including your morgage.

And it works.

Here is how they do it:

1) Set up a reasonable budget using minimum debt payments – and stick to it!

2) Find an accelerator – a portion of money that is above your budget. The accelerator can be as small as $1. Sometimes creativity is required to find the accelerator, sometimes hard choices must be made, but a monthly sum of money must be found.

3) Target the smallest debt (not always the smallest, interest rate is a factor), make the minimum payment each month plus the accelerator.

4) When the smallest debt is paid, that entire payment becomes your accelerator on the next smallest debt, only the accelerator is now a lot larger!

5) Use this process on each successive debt. By the end, you will be able to put a huge amount of money toward debt reduction.

For instance, you have two debts of $7,500 and $13,500. The minimum payments are $150 and $270 respectively. I am oversimplifying, but only to demonstrate. You find an accelerator of $30 in your budget and you add that amount to the $150 being paid on the first debt. Of course that will pay off the first debt faster, and when that debt is gone, the entire $180 payment becomes your accelerator and now you are making a payment of $450 a month on the second debt. You can easily see how that by the time you get to your final debt – most likely your mortgage- you could be making a payment that is double or triple your current house payment. It is exciting to see the accelerator grow and your debt disappear.

RF charges a relatively small fee based on the customer’s ability to pay and the projected interest savings. Customers send a lump sum to Realistic every month and the company uses their expertise to optimize debt payoff and actually takes over making each payments for the client. The chart on this page provides an example of their how their method can work.

Don’t judge this company by it’s website. Most of their business is word-of-mouth and other personal referrals. They are focused on making you debt free, not on slick website publishing. If you are looking for a solid solution to your debt, they can help.

If you have good discipline and organizational skills you can use their method without subscribing to their service.

  1. 7 Responses to “The Best Way to Get Out of Debt In My Humble Opinion”

  2. By Minimum Wage on Oct 25, 2007 | Reply

    My debt exceeds my annual income. I don’t think they can get me out of debt in six to twelve years.

  3. By rocketc on Oct 25, 2007 | Reply

    Thanks for stopping by, you’re my favorite pf comment personality.

    In answer to your comment: That’s what they created bankruptcy for. Actually, you do have a few other choices: get another job or get a better job.

    Why did you rack up so much debt if you only make minimum wage?

  4. By debt consolidation card loan on Oct 16, 2008 | Reply

    consolidation debt loan counseling of loan debt consolidation

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