Step 2: Eliminate Bad Debts part 3 -- Paying Down Debt

As a rule, you will usually pay down your debts with the highest interest first, using three ways:

1. Closed Circle: Establish budget totals to determine your available income to service debt on a monthly basis.
2. Overflow / Abundance – As you close your circle and take control of your finances, you will have overflow that will allow you to get out of debt faster.
3. Debt Reduction Strategies – There are several strategies that can help you get out of debt such as debt consolidation.

Step 2: Eliminate Bad Debts part 2 -- More about DEBT

Many people are trapped in the circle of bad debt, borrowing money all the time to purchase things that will only drop in value, or depreciate, such as an automobile or a plasma TV. Sometimes, people even have to keep borrowing money to keep up with paying debt, becoming slaves to interest.

It is alarming the gigantic debts being run up by Canadians, often thanks to credit card companies’ handling out credit cards like candy. Credit Cards should be used for monthly expenditures and paid off every month in full. Never pay Credit Card interest!

Step 2: Eliminate Bad Debts

The 2^nd step to financial freedom is eliminating bad debts. First of all, debt is not necessarily always a bad thing. Indeed, there can be such a thing as ”good debt.” Let’s look at a simple definition of Good Debt and Bad Debt.

• Good debt has an asset attached, usually positive cash flow and is tax deductible. Good Debt is Debt that is typically being paid by someone.
• Bad debt does not have an asset attached and is usually consumer debt and is not tax deductible. Bad Debt is typically paid by you.

What’s next after the Closed Circle Budget?

Creating your Closed Circle Budget is your first step to financial freedom. It is in this initial step that you build on a solid financial foundation for you, your family and the future generations of your family. You must practice all the 5 Steps regularly before you can truly reach financial freedom. Here’s an overview of what these steps are:

1. Develop a Closed Circle Budget
2. Eliminate Bad Debt
3. Legally Minimize Taxes Paid
4. Wealth Accumulation and Increase Passive Cash Flow
5. Wealth Preservation

Overflow & Abundance part 2

Here are a few more of my insights about overflow and abundance. .

The position we want to be in is where our income is above our closed circle. This puts us in an overflow position, where we are not living “Paycheque to Paycheque”. The overflow can be used for paying down bad debt, investing, planned giving, or in other areas that will help you achieve your goals. Do not spend your overflow foolishly, otherwise it is the same as living in an open circle. It is best to agree before hand on where the overflow will go. Establish a firm closed circle and use your overflow to live in abundance!

I hope I have given you a clear picture on this topic. If you have comments or questions, please just let me know and I will be glad to help you out. I hope to hear from you soon!

Best regards,

Michael Lepitre