Debt is the cause of much anxiety in today’s world. Many of our clients have found it useful to have a plan to eliminate debt. The financial flexibility and freedom from not owing large amounts of money each month bring them happiness. However, not everyone wants to become debt-free.

If you have a desire to become debt-free, consider the following approaches:

Debt Consolidation

Debt Consolidation allows an individual to pay-off multiple commitments and create a new, single loan. The combination often creates a lower monthly payment and can often be used as a tax deduction if an individual’s personal residence is pledged as collateral. Stacking is a process that requires an individual to make an additional payment over and above the monthly minimum required. The extra is placed only on one debt – typically the one with the highest interest rate. Once that first loan is paid off, the entire amount being paid for that debt is applied as extra payments to the next debt. The payment from the first debt is “stacked” as an extra principal payment on the next loan. This process continues until all debt is eliminated.

Envelope Method

The Envelope Method is more of a debt prevention technique than debt elimination. An individual decides on a budget for a variety of “discretionary” expenses (e.g. dining out, entertainment, groceries, clothing, etc.). At the beginning of the month, cash is placed into an envelope for that month’s allotment. All expenditures related to that category are only paid for with cash. When the envelope is out of cash, no more can be spent on that category. It requires discipline to not “borrow” from other envelopes to make this work.