Our Top Ten Reviews Debt Consolidation Review site is designed to help folks find help for overwhelming debt woes. Given difficult economic times worldwide, there s a chance that any of us could, at sometime, be in need of such assistance. Fortunately, with some planning and discipline, however, most people will be able to avoid the pain and frustration of extreme debt. The single most important step for most people is to be aware of the information contained in their credit report. For easy and effective ways to get that information, check out our Credit Report Review. For help in selecting a program that can help you keep track of where all the money goes, take a look at our Personal Finance Software Review site.
We all know, deep down, that avoiding debt altogether is, from a purely economic standpoint, the best path. Still, life often doesn t give us the luxury of approaching it from a purely economic perspective. That s why just about everybody has to deal with some degree of debt. Here are some of the best ideas available for reducing or eliminating debt before it becomes too much of a burden.
Relieve Frustration: Create a Plan
Getting credit is generally easy so becoming overextended is a simple matter. Most people can handle a credit card bill or two but as the number of accounts grows, losing track of your real debt gets increasingly common. The first step towards eliminating debt is just a matter of listing your outstanding obligations. You ll want to be able to prioritize the debts so, at minimum, you list should include the following information for each debt:
Total Amount of the Debt
How Much Can You Pay?
The next thing you need to know is how much you can afford to pay towards liquidating debt. Make a list of all of your monthly expenses, both fixed and discretionary. Fixed expenses are those things that you can t avoid paying no matter what. They ll include things like mortgage or rent payments, utilities, insurance, food and the like. Making a list of discretionary expenses can serve multiple purposes. Not only is it necessary in determining how much money will be available each month for paying off debt, but taking an objective look at the money that is spent in this category will almost always shed light on money that can be saved.
Subtract your expenses from your monthly net income and you ll know how much money can be put towards your debt elimination goal.
Prioritize Your Debts
Perhaps the most important concept to embrace in the very serious game of debt elimination is that you ll never win by just making minimum payments. The combination of relatively high interest rates and low minimum monthly payments, typically just 2-3% of the total debt, make it so that paying just the minimum requirement will stretch out payments for years or literally, decades.
There are a number of popular philosophies regarding the prioritization of debts floating around the world of financial advice. Most of the approaches have something to be said in favor of them, but ultimately, numbers are among the very few things in life that are absolute. Presuming that the goal of debt reduction is to pay off debt as quickly as possible and at the lowest total cost, the debt that should get the most attention is the one with the highest interest rate. You can run the numbers any way you choose but ultimately, the fastest, least expensive way to pay off a group of debts is to make the minimum payment required on all debts except the one with the steepest interest rate. For that one, you pay as much as you possibly can in addition to the minimum. When that one s paid off, you give the same treatment to the debt with the next highest interest rate, and so on, until you re debt free.
Another method that has been popularized in debt management circles is called the snowball approach. Instead of concentrating on the debt with the highest interest, this method suggests paying off the debt with the lowest total owed first. The argument here is that you ll feel so good about paying off a debt that you ll be likely to continue the successful plan, always gaining momentum like a snowball rolling down hill.
With the snowball plan and all of the other ways for ranking debt, the principle remains the same: pay as much as possible on one debt while making minimum payments on the others. As each debt is retired, the monthly amount that was being paid on it is added to the remaining debts and each, in turn, is paid off at an increasingly fast rate.
Other Self-Help Debt Reduction Steps
A home equity loan can be a viable option if you have sufficient equity in your home. Interest rates for these loans are typically among the lowest that consumers can get and the interest payments may be tax deductible. The downside of using this type of loan to repay what should be short term debt is that it converts it to long term debt and uses you house to secure the loan. Similarly, some people may be able to refinance their car or otherwise secure a personal loan at a rate that would be more favorable than continuing with credit card rates.
It can never hurt to try to get creditors to lower their interest rates on your own. They d certainly prefer getting paid back with some interest than nothing at all or a settled amount. While debt consolidation services claim that they can get better results than individuals, many creditors claim that they will offer the same arrangements to individuals.
Freedom from debt is attainable with some personal discipline and the right information for formulating a plan that will get you to your goals. If you ve taken your best shot and still need help, consult our Debt Consolidation Services Review site for objective evaluation of the best services. Consider debt management services first if you can possibly afford them. In the long run, they ll be the most beneficial. If they re beyond reach, Debt Settlement services are likely the next step. There is light at the end of the tunnel we ll help you make sure that it isn t a train.