When doing this the power of duplication can really starts to add up.

For example:

The Debt

A person has the following debt:

This person will be payments for the first month can be broken down as follow:

The assumptions and keeping it simple

Accept that on the Credit Card debt and Bank Overdraft the person is not buying anymore on it, so whatever is paid off will stay off. Also we accept for the purposes of this example that interest rates will not fluctuate.

We realize that the scenario change from month to month as debt balance reduce and that all debts does not necessarily have the same starting date, etc, but remember we work on as simple scenario as possible to show you the effect of the action plan. No matter what your debt structure is, the effects will be very similar.

The Plan

Should this person establish savings of R 400 per month and then take the following simple steps we’ll show you the result very shortly:

• Starting with the debt with the highest interest rate (the Credit Card) pay off the R 400 savings in addition to the first month’s installment until it is cleared (keep on paying the first month’s installment (R 321) and the R 400 savings each month until the balance is cleared),
• Then go to the debt with the next highest interest rate and pay off on a monthly basis the Credit Card’s installment (R 321) together with the R 400 savings on the Bank Overdraft in addition to the full interest amount of the first month (R 61) until it is cleared,
• Thereafter you move to the Car Loan and pay off on a monthly basis the Credit Card’s installment (R 321) and the R 400 savings and the interest from the Bank Overdraft (R61) in addition to the Car Loan installment until the loan is settled,
• When the Car loan is settled we move to the last debt (the House Loan) and pay off on a monthly basis the Credit Card’s installment (R 321) and the R 400 savings and the interest from the Bank Overdraft (R61) and the installment from the Car Loan in addition to the House Loan installment.

Whatever your debt scenario is, start with the highest debt and work off all debt in the manner explained above.

Additional Notes

Note: The advantage of paying off the highest interest debt first in the above scenario is that it is normally the liquid debt (Credit Card and Bank Overdraft) that gets paid off first, so should you run into a bad month or period these “funds” will be available to you to draw on, however you must try to stay away from this as it will be a setback to you plan.

Note: Another advantage of the above action plan is that it does not really require any extra money. The R 400 saving is just a “booster” to the whole scenario. You can start with a small amount of even just R 50 per month and achieve a similar scenario – the choice is yours.

Caution: Do not overextend yourself by trying to put too much into the plan – it must really be a small / reasonable monthly amount that you can afford / do without.

If you really do not have anything extra in a month (even R 10) then just pay off the debt as normal. What will happen is that you will settle the debt with the shortest term (the Credit Card in the above example) first and then you have that money extra to boost the plan.

We do not believe for a second that nobody has R 10, R 20, R 50 and any amount spare in a month – make a plan – buy 1 less packet of cigarettes (R 10+) or 1 less 2lt Coke (R 10+) in a month and you have something to start with.

What is your situation?

In the above example we’ve just talked about “a person”, but that person can be you (You may be better off or worse off). As long as you have debt you are on the losing side. The time to take action is NOW!

The Result (of the Plan)

Now for the interesting part: The comparison between WHAT IS and WHAT COULD BE.

Over a 20-year period the person in the above scenario will be paying the following:

Following the Plan the scenario will be the following:

The result shows clearly the power of duplication achieving a saving of R 184,868 or 27,8%.

If you were the person in the example, just think what you could do with R 184,868?

Following this saving the further advantage is that you will have R 3,658 (after tax) per month available to you to do with what you want after only 9¼ (112 months) year instead of paying it off on debt for 20 years (240 months).

Also although the saving about is at an average rate of 27,8%, it is actually tax free – which other investment can you get that provides you with this type of tax free return?