Getting Out Of Debt UsingĀ A New Loan (Consolidation Plan)

This debt elimination plan operates by creating a margin from a lump sum of cash. Individuals with access to a large lump sum of cash (like a new second mortgage) create the margin by immediately paying off high interest debt.

This plan assumes you can obtain a second mortgage high enough to pay off all high interest debt at one time (credit cards, auto loans, etc.). It doesn’t matter what if the new 2nd mortgage is 5, 10 or 20 years or what the interest rate is because you are accelerating it at a fast rate (4 years).

The following charts display debt payoffs and time before and then after using debt elimination plan using new 2nd mortgage to payoff high interest debt and create a margin.

CreditorInterest RateYearsMonthsPayment
Credit Card #121%13$100
Credit Card #221%16$100
Credit Card #317.5%29$200
Credit Card #415.9%15$150
Credit Card #521%011$100
2nd Mortgage15%100$200
Car Loan14%40$244
Car Loan12.9%20$288
Student Loan10%82$62
New 2nd Mortgage12.5%n/an/an/a
1st Mortgage8%284$991
Taxes and Ins.n/a284$120
New Monthly Payments$2,555
CreditorYearsMonthsPayment  
Credit Card #101Paid Off
Credit Card #201Paid Off
Credit Card #301Paid Off
Credit Card #401Paid Off
Credit Card #501Paid Off
2nd Mortgage01Paid Off
Car Loan01Paid Off
Car Loan01Paid Off
Student Loan05$921Paid Off
New 2nd Mortgage40$523$1.444Paid Off
1st Mortgage96$120$120$120
Taxes and Ins.96$120$120$120
New Monthly Payments$2.555$2,555$2,555

$1,382 in high interest debts paid off minus $523 for the new 2nd mortgage payment equals an $859 margin.

The margin ($859) created by paying off the first eight debts is directed to the student loan ($62 + $859 = $921). The student loan is now paid off in 5 months.

Once the student loan is paid off, the new margin ($921) is then directed toward the new second mortgage ($523 + $921 = $1444). The new second mortgage is now paid off in 4 years.

After the new second mortgage is paid off, the new margin ($1444) is then directed toward the home mortgage ($1444 + $991 = $2435). The mortgage is now paid off in under 10 years!

In this example, the projected interest payments without using a debt elimination plan equals $223,566. The new projected interest paid for all loans using the plan is $86,203. Using the debt elimination plan saves $137,363 in interest payments!

Diverting funds from the margin:

What happens if you choose to divert a portion of the newly created margin to the creation of an emergency fund, unforeseen expenses or a new expense like a car purchase?

AlternativeOption 1Option 2Option 3Option 4
Additional Funds$0$100$200$300
Monthly Payment To Old Debt$2,555$2,655$2,755$2,855
Years To Payoff9 years 6 months8 years 11 months8 years 5 months7 years 5 months

Adding funds to the margin:

If you were to add funds to your monthly payments outside of the created margins you will accelerate payoff of your debts even faster.

AlternativeOption 1Option 2Option 3Option 4
Additional Funds$0$100$200$300
Monthly Payment To Old Debt$2,555$2,655$2,755$2,855
Years To Payoff9 years 6 months8 years 11 months8 years 5 months7 years 11 months