Getting Out Of Debt The Easiest Way
May 18 2008 01:25 pm | Portraits To Art
Getting Out Of Debt The Easiest Way
One major problem for many people nowadays is that it is all too easy to know that you have problem with debt but it is very to know precisely how large that problem is. In fact you might be surprised to hear that a very significant proportion of those individuals with debt problems have no idea how much they actually owe or how much they are paying out in interest charges on their borrowings every month. So, the initial step in dealing with your debt is to calculate precisely how large the problem is.
Make a list of all the debts which you presently have, separating out how much of the original debt is still outstanding and how much you are having to pay every month. You also need to separate out your payments to see how much of the payment represents a repayment of the original loan and how much is merely interest.
You may well be shaken by what you find, not just in terms of how much money you actually owe, but in terms of how much of your income is simply going to repay interest. For example, if you are earning $4,000 a month and are paying $400 a month simply in interest charges then this means that you are paying out 10% of your income without actually reducing the overall amount you owe. If this sounds bad enough, then take it one stage further. If $400 is the most you can afford to pay out each month then you could continue paying this for years without actually reducing your debt at all.
With any luck the balance between the sum that you are paying in interest charges and the amount going to repay your original loans will be reasonable and it is difficult to quantify exactly what this should be as it will vary from one loan to another. For example, in a normal home loan it is not unreasonable to be paying 90% interest and 10% principle in the starting years of a mortgage, but you assuredly do not want to be paying this on your credit card debt.
Having discovered how large the problem is the next thing you have to do is to construct a plan to clear your debt as soon as possible. For this you are going to need to work out how much you can afford to pay off every month and then decide how this amount should be applied to your various different debts.
One solution is what is occasionally referred to as the ’snowball’ method and involves paying off your smaller debts. You then have more money available to pay off the remaining debts and can slowly work your way up to your biggest debt.
A second solution is to tackle the largest debt first and so save the greatest amount of money in what is in essence wasted interest payments. This is not an easy method however and progress is slow making it difficult to stick to this particular plan.
Whichever course you decide to follow you must not simply ignore some of your debts while clearing the others or you will run into trouble with your creditors and cause problems with what might already be a damaged credit record. If meeting at least the minimum payment required on all your loans then you will need to talk to the lenders in question and see whether they are prepared to assist. The majority of lenders will have a debt reduction settlement program and they will generally agree to assist you by accepting reduced payments for a short period of time, or possibly even to waive your payments for one or two months, if you explain your situation to them.
If you have got yourself into a mess and are sitting down trying to work out how to deal with your debt then do not make things even worse than they already are by taking further debt. This might appear obvious but you would be surprised at how many people in debt try to borrow their way back into the black. This never works and just makes a bad situation even worse.
TheDebtAssistanceCenter.com provides all types of debt assistance including such things as answering questions like how can I remove a judgment from my credit report?
Getting Out Of Debt The Easiest Way / Author: Donald Saunders
