S.P.F. Your Debt - A Formula to Pay Off Your Debts Without Getting Burned

Too many bills? Credit scores suffering? Credit payments taking every last dime each month? You try to pay a little extra on each account, but the balances don’t seem to ever go down? How can you possible get out from under this dark cloud of debt?

Well, don’t fret. Sunnier days are on their way, if you can figure out a good way to start getting rid of some of your accounts. And in this article, I’d like to give you a quick little formula to help you pay off your debts faster and more efficiently and start making progress towards being debt free again.

Don’t Drain Your Accounts

First, I don’t want you to drain your bank accounts or spend every last dime you have on this formula, but you may have some money you can start using for debt reduction right now. So this formula is designed to show you which debt to focus on first.

The idea is to concentrate on paying off completely one debt at a time. You make only the minimum payments on all other accounts and then take all extra debt-reduction money and concentrate it on one account until it’s paid. Then you move on to the next account. But which account do you choose?

Forget What You’ve Heard

Forget everything else you’ve heard about debt reduction. I want to introduce you to the S.P.F. formula. S.P.F. is a common acronym used on sunscreen lotions to let you know how strong the protection is. In our case, the S.P.F. stands for “Supercharged Payoff Factor” (Sunny Days & S.P.F. – Hey, I think I’m clever…) and we’re going to use it to determine how strongly each debt is affecting your overall finances. By getting rid of the debts that are tying up more of your monthly budget, we can free up money to pay off the other debts faster (and raise your credit score faster too).

To calculate your S.P.F., your take each debt account and divide the outstanding balance by the minimum monthly payment. For example, a credit card has a balance of $10,000 and your minimum monthly payment on it is $300. Your S.P.F. is 33.33 ($10,000 divided by $300). Another account has a balance of $500 and the minimum payment is $50, so the S.P.F. is 10.

Calculate Your S.P.F.

Calculate the S.P.F. on all your debts. Then rank them in order from lowest S.P.F. number to highest S.P.F. number. The debt you’re going to concentrate on first is the one with the lowest S.P.F. number. Why? Because this is the account that is taking a higher proportion of your income each month compared to the size of the debt. If you don’t understand that math – that’s fine. Just trust me, by getting rid of your lowest S.P.F. account, you’ll free up more cash flow each month, giving you more money to apply towards your next lowest S.P.F. account. And soon, you’ll have more Sunny days ahead.

Look at this example:

By focusing on the “Bank 1” account with the $500 balance, you can kill it off and not have that $50 a month obligation anymore. That $50 can now go towards paying off AB Auto. Once that’s gone, now you’ve got an extra $277 a month to get rid of Big Card.

You are now gaining momentum and the debts are disappearing, and hopefully your disposition will be turning sunny and bright again. Don’t forget to slap on the sunscreen!

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