Step 3

Domino Your Debts

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Today you’re going to regain control of your life.

The bottom line is this: if you have a credit card debt, or a personal loan, or a car loan, you’re not in control of your financial future.

Look, I’m not here to judge you.

What I’m here to tell you is that if you’re in debt you’ve already experienced the worst of it. You’re about to regain a feeling of confidence and control. It’s all upwards from here. My method works. It will work for you. And best of all, you’re going to enjoy it.

It’s like playing a game of (Debt) Dominoes.

There’s a bit of work in setting it up, but it’s worth it, because once you’ve lined everything up you’ll find that each debt gets knocked down like a domino, one after the other, automatically.

Let’s do this!

Domino 1: Calculate

The first thing you need to do is line up all your debts—other than your HECS-HELP and your house (if you have one, which we’ll deal with in Step 4).

Write down all your debts—credit cards, car loans, parking fines, money you owe to friends. There’s something very powerful about getting stuff out of your head and down on paper.

Domino 2: Negotiate

Now that you’ve calculated all your debts, it’s time to negotiate. Hard.

The first thing to do is grab your statements, ring your bank and try to renegotiate a lower rate on your credit card.

Tell them you have an offer from Citibank of a zero per cent balance transfer for 18 months, with no application fees, no ongoing fees and no transfer fees and you’d like them to match it.

They probably won’t. But chances are they will give you a lower rate on your current deal. Remember, it costs the bank more to acquire a new customer than it does to keep an existing one.

So why shouldn’t you just take the interest-free balance transfer from Citibank for 18 months?

Logically, you should.

However, the reason the banks are able to do something as illogical as give you an 18-month repayment holiday is that they know you’ll probably spend more money on the new card (at a crazy interest rate, after the honeymoon period) and that you won’t pay it off in time.

That’s why I’ve found that for most people it’s better to negotiate a lower rate on your existing cards and pay them off one by one.

Domino 3: Eliminate

It’s time for some plastic surgery. Cut up all your credit cards. Take a photo, and post it on the Barefoot Investor Facebook page. Get ready for an avalanche of ‘likes’.

Domino 4: Detonate

Now it’s time to detonate your debts.

I want you to rearrange your list of debts from smallest to largest.

We’re not focusing on paying off the debt with the highest interest rate first (you should have already negotiated that one down in Domino 2). Instead, we’re focusing on building up your confidence by detonating some debts very quickly.

Now, single out your smallest debt.

It could be a parking fine, or $50 you owe a mate. It could be a credit card. Attack your smallest debt by bumping up the repayments so you can knock it over like a domino as quickly as possible. Focus your attention on knocking this smallest debt over completely.

But remember: while it’s great to put your spare money into paying off your debts fast, always make the minimum repayments on all your debts (such as a monthly payment on your credit card). This will keep the annoying letters (and debt collectors) at bay.

Domino 5: Celebrate!

When that smallest debt is paid in full, hold a bill-burning ceremony.

Seriously, I want you to go out to your backyard (with an alcoholic beverage of your choice) and burn the statement with a lighter. Celebrating is really, really important. You need to give yourself a pat on the back for having a small win. That’s how you build momentum. You’re training your brain to win.

The next day, take your momentum and move on to knocking over your next debt domino.

Keep going till you’ve knocked them all down.

Once you go through the process of lining up your dominoes you’re already free.

Being in debt is not the same as having a debt problem.

Once you begin pushing that first domino, you’re already in control, and you’ll soon be debt free!

P.S – You’ll find word-for-ford scripts on exactly how to negotiate a better deal on your debts in my book, The Barefoot Investor: The Only Money Guide You’ll Ever Need. Order your copy here.