Tuesday, September 15, 2009

Debt Reduction and Elimination

"There are only two types of people who deal in interest--those who
understand it and those who do not understand it. Those who understand it,
collect it. Those who do not understand it, pay it." -Deseret News 1/9//93

There are several kinds of debt but most fall into these categories: consumer debt, educational debt, vehicle debt, and home mortgage. In June of 2007 the total US consumer debt, not including mortgages, was 2.46 trillion dollars. If you are one of the many Americans in debt, the time is now to get out of debt and find financial freedom. One way to get out of debt is to contact a company who specializes in eliminating debt. However, expect to pay them some money for this service. This may be a great method if you are so over your head in debt that you don't know what else to do. I recommend getting out of debt on your own by following these steps.

First, perform a little "plastic surgery" and cut up your credit cards. You might wish to keep one for emergencies but make sure it is only used for that. I have a friend who placed her credit card in a bag of water and then placed it in the freezer to ensure it was used only for emergencies. Only spend money that falls into your budget parameters and pay with cash. If you can't pay cash then don't buy it.

Next make a list of all of your current debt and include information like; total amount due, minimum monthly payment, and the interest rate. Now call all of the companies and ask them if they can give you a lower interest rate. Most people qualify for a rate lower than what they are getting so you need to ask.

The last thing to do is create a debt elimination plan/chart. I've created a sample on you can view here. Here is how it works. List your debts starting from the smallest one first to the largest one. Every month pay at least the minimum amount due. Once you pay off your smallest debt, add that minimum payment to the 2nd smallest debt. Once the 2nd debt is paid off apply that payment towards the next debt and so on. It is a snowball effect. The sum you pay towards a single debt increases but the total amount you pay towards all your debt remains the same. By following this method you will get out of debt faster. Once all your debt is paid off you can then place the total monthly payments you were using to pay off debt into your savings account. If you need this clarified more please ask and I will explain it. Looking at the sample chart here will help out too.

If you currently do not have debt congratulations! Please share with us how your family stays out of debt.

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