Debt Reduction seems to have become fashionable and its not considered a dirty word anymore. The economic slowdown and financial chaos and the resulting uncertainty created have probably been the most important factor in this change. 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. While I do not pretend this method will work for everyone, it will at least give some a start. Depending on your circumstances seeking professional help is a good idea.
Using a professional mens 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 Process for Debt Reduction is as follows:
You need to first organize debt into three piles, which are::
Mortgages – Mortgages are loans against real estate, usually your principle residence. This type of debt has two advantages it gives you tax deduction and you may be able to use it to retire more costly debt such as credit cards.
Installment Debt - This is debt that is paid at a fix rate for a set amount of time or months. This would include cars, bank loans and similar.
Revolving Debt – This is usually credit card debt or other similar debt that the interest is added to the outstanding balance every 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.
• First part of the process is to make a personal commitment to debt reduction and that you will stick with it until its achieved.
• 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 it’s 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.
• Make a budget. You already have the numbers for the amount 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.
• 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.
• 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..
• Party!! And enjoy your that you have begun your journey to financial freedom, now you can treat yourself to something special, without incurring any debt of course.
• Go back to step 5 and repeat the process until you eliminated all debt. Repeating this cycle has the avalanche affect and before you know it you will have become debt free.
You may look at the above process and say to yourself that its not applicable in your case or numbers are not your thing. Don't lose hope and remain optimistic.. There are circumstances were the above methods may not be applicable.
You only need professional advice from those that can help you eliminate debt. They will custom make a program that is right for you and help you achieve financial freedom.. I still believe that it's a get rid off credit card.
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