A Simple 7 Step Process For Debt Relief
It now appears that more people are tanking a serious look at debt reduction
. The economic slowdown and financial chaos and the resulting uncertainty created have probably been the most important factor in this change. Different circumstance gave rise to this change in attitude. For many it was not a choice, but simply imposed on them by losing their jobs or other situations, for others it was simply the impact of events that made them decide that debt reduction was the right thing to do. There is a process which we list below, that you can use you whittle down debt. These are general guidelines and may not practical and applicable to everyone. 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. The cost of using a professional almost always pays itself by the benefits received.
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.. The interest on it is not fixed, you may get an introductory rate at first which sextupled after the initial period is over. 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. The biggest problems encountered are with revolving debt, naturally this is what debt reduction should address.
1)The first step, which seems the most obvious is to make a conscious decision to become debt free/ and make commitment to stick to your goal achieve it.
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)Prepare a budget. You already have the numbers for the amount you need to service your debt. The budget should include all other normal and necessary expenses including, rent (if any), utilities, insurance, food, clothing and anything else that is recurring.
4)Test your budget for a period of time, 3 months is usually good to determine if it need to be tweaked. Once you know you budget is representative of your monthly income and expenses, then you can begin to eliminate debt and begin your debt reduction program
5)Any amount that is left over each month, dedicate to reducing debt. If you can pay a little extra on each account, concentrating on reducing the most expensive or revolving debt first. As you pay of your debt the budget surplus becomes bigger each month and you monthly payments less. This by itself will allow you to reduce debt quicker..
6)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.
7)Go back to step 5 and keep going though the cycle until got rid off credit card and all other debt. Repeating this cycle has the avalanche affect and before you know it you will have become debt free.
After reading the above you like the process but either for one reason or another you cannot not apply the above process or working with budgets and number seems like a foreign language. Don't lose hope and remain optimistic.. There are many cases in which the above is not workable or the situation seems very difficult. 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.
by: Tom Morton
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