“The Easiest 15% You’ll Ever Make …”

How to Start off the Year Right and Give Yourself a Debt-Free 2014 with the Super-Simple Debt Decelerator!

As we continue our Wealth Foundations Essay series, we’ve all heard the stories of lavish spending … of fools and their money swiftly parted …

One of my favorites from recent years was American football player Vince Young. A gifted athlete in college who went for top dollar in the pros—then blew it all on $600 shots of booze for him and the team, and $6,000 dinners at surprisingly average restaurants like the Cheesecake Factory and T.G.I. Fridays .

But hey, what can I say?

Looking back on my early twenties, I definitely did my fair share of questionable spending. As you may already know, I had plenty of revenue coming through my fingers from things like the MCG venture and the book deal I had—but the arrogance of my age didn’t let me keep a lot of it.

Plus, those royalty checks from a book publisher are not what you might think. Apart from the small advance that I received which went straight to the GhostWriter/Editor… the government here in Australia make more money in sales tax (GST) then I did everytime a book was sold.

Sure, I still had more than enough to live it up. The fun … the toys … the adventures. For a time I found myself in love with a girl who lived on the other side of the world, and I burned through thousands of dollars on 21-hour plane rides without a second thought.


I wouldn’t want to give these experiences back for all the money in the world. And I didn’t bankrupt myself in the process either. But still, now that I’ve started to step into my life as a responsible family man—to live by the Wealth Foundations I’ve been sharing lately and plan for years into my family’s future—I’m realizing we really can’t continue the series without touching on the topic of debt right away.

Because for the most part, Wealth Foundations is going to be about increasing your income and streamlining your unnecessary spending. All of this is well and good on paper, but what about in the real world, where almost none of us are going to be starting from zero?

It might not be you, but a lot of people I meet through this little Preneur Community we have here, tell me that they want to start a small part-time business just to tackle some of the consumer debt they’ve accumulated over the years.

So for all of us here in the real world, I’ve added another key Wealth Foundation to the mix … the Debt Decelerator …

A Possibly Redundant Disclaimer!

But before we get started, let me remind you that I’m not here to play financial advisor to anyone over the internet. I’m not an accountant, I dropped out of my Masters of Accounting, and I don’t even try to portray one on television. I’d just like to do the same thing we do with virtually all of our PreneurMarketing.com essays; to share the experience and insight of someone who’s been there and gotten through it.

That’s right; I’ve been in debt. Serious debt even, from time to time. Even those at some of the highest income levels can carry serious amounts of debt—often because they mistakenly think they can handle it.


And that’s the second big disclaimer here; you are absolutely not alone. Technically speaking, everyone in Australia’s in debt; to the tune of $244 Billion (or US$17 Trillion for our American readers ), but let’s not get political. The point is that you’re not alone, you’re not helpless, and by getting out of debt you’ll be putting yourself in a much, much better position.

Which leads us to the third big disclaimer of today’s essay. No excuses. No “but’s.” Many people think it’s a better idea to carry some kind of debt for a little while, and either invest or build savings instead of paying it off. This is very often going to be the wrong decision.


Because the average credit card interest rate is very nearly 15%. Fifteen Percent!

That may not sound like much, but an interest rate of 15% is something that most of us could scarcely comprehend these days. If you’d made 15% on your investments since 2001, then a starting portfolio of $180,000 would now be worth nearly a million dollars.

Now imagine that same kind of compounding happening … on the other side of your balance sheet—with your debts. So even if you’re out there, claiming business success after business success, the interest rates will constantly be gnawing away at your bank accounts—one step forward, two steps back.

Right now, every piece of consumer debt you have is costing you more each and every year. So every dollar in debt you can pay off, is instantly giving you a positive return, by keeping more cashola in your pocket next year. EXACTLY the same result as investing elsewhere.

Remember; you are your first investment. If you’re carrying $10,000 in credit card debt at say 15%, then paying it off will net you $1,500 in gains in the first year alone!

Instead of paying even more in interest the next year, you’ll stomp out the threat of compounding interest and free up future income to go elsewhere instead of tying it up on a lost cause like debt servicing.

Sure investing is exciting and sexy, but don’t fooled by those bright lights – the best risk free, guaranteed return you can make is getting out of debt FIRST.

You are your first investment. And that’s what today’s essay is all about.

There are two bright shining exceptions. First, if you’re going bankrupt or already on an existing debt repayment plan, then the Debt Decelerator isn’t for you. And second, if you’re building your emergency fund (usually just a few paychecks’-worth of savings kept at arm’s reach), which we’ll assume you have in place before beginning …

The Debt Decelerator Strategy

Now despite the fancy name, the Debt Decelerator works just the same as any of our other basic Wealth Foundations … You capitalize on the experience of others, apply a slightly different “preneur perspective”, and set yourself up for windfall gains.

Except with the Debt Decelerator, you’re setting yourself up to prevent cascading losses. Instead of cashing in on interest over time, you’re going to be working to keep yourself from paying more and more unnecessary interest on your outstanding debts.

It’s a crucial investment—especially in today’s economy. One which will free up more of your future cash reserves and give you outstanding flexibility regardless of what’s ahead for yourself or your business.

So the very beginning of this Debt Decelerator Strategy is simply that … to make a conscious commitment to pulling your head out of the sand and strategically paying off your debts as soon as reasonably possible.

Because even though I promise this process won’t be too difficult, it’s still not exactly easy. Getting out of debt can be deeply psychological for some people, and it may involve changing the way you see some things.

Few people can successfully pay off their debts while still going on regular 21-hour flights or otherwise spending to their hearts’ content. So you’ll need to commit to a reasonable level of proactivity and self-restraint before getting started.

Once you’ve made that commitment—once you’re really ready to get yourself out of debt once and for all—then it’s time we really get to work … starting with something that’s traditionally been called the “Debt Snowball” …

The Tried-and-True Routine For Shedding Debts Fast

The Debt Snowball Method is really the core of this whole strategy.

By using this strategy, you can use a small yet reasonable portion of your income to pay off larger and larger debts as time goes on. Here’s how it works:

Debt Decelerator

In this relatively typical situation, our debtor owes some money to various credit card companies along with $7,500 to an auto lender and fourteen thousand in back taxes.

As you might imagine, there are any number of ways to tackle this situation. Some folks might zero in on the biggest debts right away; the ones that keep them awake at night. Others might think the most reasonable thing to do would be paying down each debt evenly. But then there’s the third way; the debt snowball way …

By simply paying the minimum on all those debts—as you can see above—our debtor has freed up an additional $350 in personal income to use for his or her “debt snowball” payment. So they begin by focusing all of that payment on the smallest of their debts … throwing a total payment of $375 at their smallest debt ($500) just in that first month.

The result?

The first debt is quickly dispatched, and the debtor is free to take that $350 snowball payment—and then $25 minimum payment from the previous debt—and roll them both into the snowball. Now, we’re paying pay a total “debt snowball” of $490 on what is now the smallest debt.

It’s important to remember at this point that they’re not committing any additional income to this plan; just rolling their payments from smaller debts up to larger debts …

This process continues and continues—adding larger and larger minimum payments to the snowball one at a time—until our debt snowball swells from $490 to $715 to $1,240 in the final step, as you can see above.

It’s a fantastic strategy—one that helps you conquer the difficult mental challenges of being in debt … one that can help you to break down complicated situations and make large financial changes with a little bit of clever structuring and perseverance.

The debt decelerator strategy has long been championed by personal finance guru Dave Ramsey—and it’s perfect for our use today.

In fact, I personally think it’s so perfect that I’ve included a customized tool below with all the basic factors and functions you’ll need to calculate your own personal debt snowball.

On this debt snowball calculator, you’ll also notice that the widget offers the chance to use either an “interest-based” or “balance-based” calculation for your debt snowball. And while the difference might seem simple and intuitive, it’s one of the most important parts of your calculation …

Mom, I Love You … But …

I truly love my mother.

She’s a practical woman—a math teacher whose inspiration (and spare garage space) was instrumental in some of my earliest business successes.

And if she were writing this essay to you today, she would recommend an interest-based calculation without batting an eye. With an interest-based calculation, you focus on paying off the highest-interest debts first, rather than paying off the lowest balances.

So instead of paying off a debt of $500 before a debt of $1,000 (balance-based), an interest-based calculation would focus on paying off a 15% debt before a 10% debt. Ideally you end up paying less, specifically less in interest when compared to the balance-based approach.

As a math teacher, she’d probably even demonstrate why it’s the more financially sound choice in the long-term …

“For example,” she’d say, “If you’ve got a $500 debt at 10% and a $1,000 debt at 15%, then you should pay off the second first. It might only take half as long to pay off the first debt, but in that time you’ll pay 50% more in interest than you would have the other way around.”

That’s why I love her. She’s so consistent. But in this case, I’m going to have to disagree …

You see, she’s absolutely right from a mathematical perspective. In terms of saving the absolute most, then the interest-based approach is the right way. It’s the best rational choice.

But how often are people really perfectly rational?

Like I said earlier, getting yourself out of debt is a psychological process. It’s something that takes a serious commitment, and when you’re using the snowball method it can be very much about momentum. So getting in those first few wins as quick as possible can make a huge difference.

With all that in mind, I recommend the balance-based approach pretty much every single time. Regardless, the widget includes the option for both types of calculation so that you can decide for yourself.

Preneur Turns the Snowball into an Avalanche

So now you’ve got a dedicated debt snowball, rolling out larger and larger payments each month to a shorter and shorter list of debts, and that’s a heck of a start.

The best part about the Debt Snowball is that it’s relatively static, once you’ve settled in with your monthly payments. You pay a stable amount each month, but you’re not required to liquidate savings or investments just to pay the piper,

To most Preneur readers, that’s a pretty big windfall.

Because while many of us have our own debts, we’ve also got extremely healthy and varied projects for the most part. And so the second stage of our Debt Decelerator is all about combining the consistency of the Debt Snowball Method with the leverage of our existing business projects …

That means income from existing investments or businesses—anything other than your outlined salary or hourly compensation—should also be going toward paying off your debts. Ideally, we’re talking about fifty cents out of every dollar in income that wasn’t directly earned by your daily work.

You know that eBook you’ve got that makes a few bucks each month? 50% of that Kindle Publisher money goes to debt reduction.

That affiliate promotion you did last week?

Yep, 50% of those commissions go to debt reduction (not into buying the next course).

Why so much? Why fifty percent?

Well first, you’ll remember that paying off these debts is—in almost every case—the single best investment you could make right now. With an interest rate of 15%, your average debt is guaranteed to cost you far more than any stock or currency investment can safely promise.


Which is why this step is instrumental for Preneur community readers hoping to build their own tidy and lasting fortune (a.k.a. Every one of us). By pushing half of our indirect income into our debt snowball, we can kick start the avalanche much sooner—watch our snowball payments double and triple in a fraction of the time it would otherwise take.

Before you know it, your debt snowball has turned into an avalanche right before your eyes.

Plus there are a few other key entrepreneur benefits that come along for the ride:

  1. You’re building a habit; and the skill of habit building is essential to success in any field. Cultivating these kinds of habits could often act as the first step to building massive savings and even early retirement.
  2. You’re learning to manage cashflow; the life blood of any business. And while it requires constant attention, managing your cash can be straightforward and relatively stress free—as this habit will teach you over time.
  3. And finally, you’re executing the strategy of ‘self-determined success’ that we talked about on PreneurCast ep120 (“The Number One cause of small business failure is misguided strategy, not sloppy execution, poor leadership or bad luck)

Think of it as “Debt Snowball 2.0”

So as you can see, the Debt Snowball method is really a work of art.

It’s simple, it’s powerful, and it cuts right through the financial and mental clutter that can lead so many of us into debt in the first place. It’s of great use to an almost shockingly huge portion of the world’s population.

But at the same time, that popularity—that universal appeal—can be a weakness. It can be a bit oversimplified, and it’s bound to leave out some of the critical ways in which you can help yourself on the sometimes long road out of debt.

Which is why I shared today’s Debt Decelerator, my kind of a “Debt Snowball 2.0” that’s specialized for the Preneur Community.

It’s not much more complicated than the basic snowball method after all;

Step #1: Make a firm and binding commitment to yourself to Get out of Debt

Step #2: Start rolling your own “debt snowball”

Step #3: Use additional Preneur Assets to turn your Debt Snowball into an Avalance

But within these three simple steps—I believe—lies the key to all you need to get safely and swiftly out of debt, so that you can watch your stress levels sink and your possibilities soar just in time for the 2014 holidays. So that you can finally turn the tables and start making the clock work in your favor. So that you can start compounding on each little success for years to come.

So why not get started right away?

[i] http://www.sportsgrid.com/nfl/counterpoint-tgi-fridays-and-the-cheesecake-factory-made-vince-young-broke/

Pete Williams is an entrepreneur, author, and marketer from Melbourne, Australia.

Before being honored “Australia’s Richard Branson” in media publications all over the continent, Pete was just 21 years old when he sold Australia’s version of Yankee Stadium, The Melbourne Cricket Ground For Under $500! Don’t believe it? You will! Check out the story in the FAQ section (it really is our most asked question).

Since then, he’s done some cool stuff like write the international smash hit ‘How to Turn Your Million-Dollar Idea Into a Reality’ (+ the upcoming ‘It’s Not About the Product‘) and he’s created a bunch of companies including Infiniti Telecommunications, On Hold Advertising, Simply Headsets and Preneur Group.

Lots of other people think he’s pretty good too! He’s been announced as the Global Runner-Up in the JCI Creative Young Entrepreneur Awards for 2009, the Southern Region Finalist in the Ernst & Young 2010 Entrepreneur of the Year, and a member of SmartCompany’s Top 30 Under 30.

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