subject: A method to reduce your debt [print this page] A method to reduce your debt A method to reduce your debt
It now appears that more people are tanking a serious look at debt reduction. The biggest factor contributing to this perhaps is the financial turmoil and resulting economic slowdown we have experienced from 2008 to the present. Some by necessity have had to take a hard look at Debt Reduction due to loosing their employment, while others simply impacted by what was going on around them, simply decided the getting rid of credit card debt and other debt was simply an idea that they had put off for too long and began to eliminate debt. Below I give you a methodology that you can use to slowly reduce debt. These are general guidelines and may not practical and applicable to everyone. Seeking professional help is a good idea even if you choose to follow the process below. Using a professional means increasing the money you save and reducing the time you spend on it. In the end the big benefit of this process is reducing the stress in your life and achieving financial freedom. Using professional may have a cost, but the benefits derived are normally much greater thank try going at it alone.
The Debt Reduction process is as follows:
First you must get your debt organized and separate into three categories:
Mortgages - Mortgages are loans against real estate, usually your principle residence. This type of debt of some important advantages, first the interest gives you a tax deduction and secondly, it may be usable to reduce other debt that is much higher in interest.
Installment Debt - This is debt that is paid at a fix rate for a set amount of time or months. Carr and personal bank loans fall into this category.
Revolving Debt - This type of debt is almost synonymous with credit card debt were interest is added to the outstanding balance each month. Paying the minimum balance each month does not do much in retiring the loan and it may take 8 to 12 years or longer to do so.. You interest is not fixed either, which means they can raise as they wish. As we seen this past year many credit card companies raised their effective rate as high as 30%, not including other charges that are imposed at their discretion.
Debt Reduction naturally should address revolving debt, which is where individuals encounter their biggest problems.
1)First part of the process is to make a personal commitment to debt reduction and that you will stick with it until its achieved.
2)Next you need to assess exactly what kind of debt you have, how much you owe and the monthly minimums. Best way is to prepare a worksheets that has columns for, type of debt, whom its owed to Interest rare, current balance, monthly minimum payment and any other information that you feel is important. The add the current balance and minimum payments and this will tell you the total amount of debt you have and how much you make each month to pay the minimum payments of all your debt.
3)Make a budget. You now know how much you need to service your debt. This budget also includes, rent (if mortgage is not included above), utilities, insurance, food, clothes and other normal recurring monthly expenses.
4)Test your budget for a period of time, 3 months is usually good to determine if it need to be tweaked. When you have established that the budget is valid, then you can begin your debt reduction program.
5)With any excess money each month dedicate it to eliminating debt. If you can pay a little extra on each account, concentrating on reducing the most expensive or revolving debt first. By paying something extra you monthly minimum payments are reduced and your budget surplus increases allowing for more debt reduction. This by itself will allow you to reduce debt quicker..
6)Celebrate, that you have begun your journey to financial freedom. Treat yourself to something special, with no debt obviously.
7)Go back to step 5 and keep going though the cycle until got rid off credit card and all other debt. This process has the snowball affect and repeating it will result you being debt free before you know it.
You may look at the above process and say to yourself that its not applicable in your case or numbers are not your thing. Dont despair or lose hope. There are circumstances were the above methods may not be applicable. The solution is to seek a professional that will help you through the numbers jungle and eliminate debt. They will custom make a program that is right for you and help you achieve financial freedom.
welcome to Insurances.net (https://www.insurances.net)
