We have all been there. Meekly hunched under a small fortune of one type of debt or another, telling ourselves, “When I get this paid off, I am never using credit again!”. Bold words coming from a financially bolder person. Although avoiding the use of credit altogether may not be realistic, settling all of the debt you owe in a quick, structured way is.
To Begin…
By actively seeking advice on this matter you have already completed the first step to stopping the mountain of envelopes you receive bi-monthly and those annoying phone calls sent out so lovingly by creditors. Congratulations. Because no matter where you go to seek financial advisement on debt issues they will all tell you the same thing: The first thing you must do is realize that this debt is your challenge and decide that you will begin to take care of it. So in the spirit of adhering to their advice go ahead and gather up all of the most recent figures you have on every debt you owe. On a piece of paper, or on a computer, separately list the name of each creditor, the outstanding balance you owe, the interest rate, how much you should pay each month to avoid penalties, the monthly due date of payment, and any other special dates or deadlines for payment.
Ouch! It may not seem like it, but this is a great thing that is staring you in the face. It is the beginning of a structured re-payment plan.
Second…
Go ahead and bring up this debt repayment calculator. This is a very easy to use tool that will let us see exactly how long it will take you to repay any debt when you begin to make the monthly minimum payments, or how long it will take when you pay a fixed amount of your choice. Or, as you can see, by giving the calculator a date you would like to be debt free, it will provide you with a payment plan to get there.
Double ouch! Ok, well the piece of junk might be telling you that acid wash will be back in style by the time you can afford new jeans, but don’t worry, in the next step we will fix this.
Third…
Now you know the minimum monthly amount you should be sending each creditor so that all your debt is paid off by 2072 or whatever. Go ahead and add up all of these amounts and see what you will be paying each month in total. What we need to do next is figure out whether the monthly income you are currently bringing in can cover this lump sum. Grab the calculator you should already have out and see how far off you are or what you have left. All of those who fall short go to the ↓ symbol below and the lucky few who have money left over go to ↑ symbol.
↓ Ok, you are a little short. The good thing is there are plenty of ways to scrounge up this money, it will only require a little more planning. First, list the essentials you will buy this month, groceries, gas, vending machine snacks, movie rentals, jeans, everything. Eliminate any expenditure that is not necessary for you to continue living. Seriously. Because if you do not pay off this debt you won’t have them anyway and your living standards might be worse than they are now. Once you have whittled down the absolute least you can spend in a month add that amount to the minimum monthly payment sum. This is the goal you must achieve. Finding different ways to reach this can be quit a task, but now that you are organized and set on eliminating the debt there are countless resources that will help you. Ideas:
-Refinance your mortgage: saving at least 1% on your mortgage interest rate by refinancing can make a big difference in the monthly amount owed.*Switching to an ARM Mortgage Loan can reduce the interest rate you pay in the first several years (sometimes beginning under 3%) and as you begin to pay off other debts the rate will rise, this usually happens after 5 or 7 years. Find one here.
-Find Odd Jobs: there are plenty of places you can earn extra money, get out and look or search the web. Remember, every extra dollar puts you one step closer to living free of pesky debts.
-Contact the people at GreenPath. This is a free debt counseling organization that will give you personal attention and help you contact creditor’s to explain that you have a re-payment plan and are working to give them their money. Free to you and extremely helpful.
No matter how far off you are from meeting the monthly amount you will need to silence creditor’s they will always be willing to work with you once you are organized and moving towards repayment. Contact the companies you owe money and ask to speak to their customer service representatives in order to set up an appointment.
↑ Great! You are now aware that paying off these bills is simply a matter of writing the checks on time and keeping up with the payment plan you have just now set up. Sticking with this will allow you to pay off those debts and start living free of the monthly collection brutes. In order to streamline this process consider the points below that will help you choose how to allocate the extra money you have amongst outstanding balances.
Fourth…
It is now the time to decide which debts have priority over others and realize why it is important to pay these off first. There are three main things to consider when choosing the pecking order, they are: debt with the highest interest rate, debt with smallest principle, and whether or not the debt is revolving.
♦High Interest Debt: While looking at your breakdown of debts notice that no matter the principle, the debts with the highest interest rates are quickly becoming the biggest problems. By paying these off first you reduce the risk of high penalty charges from steeply rated interest claims and you will be able to use the large amounts of money, usually wasted on non-principle payment, to pay off your other debts.
♦Small Principle Debt: Here I am referring to the $80 you owe Macy’s for opening up a card with them and getting that 15% discount on shoes. Pay these off as soon as possible so you can use the interest accumulating on these debts pay off larger purchases.
♦Revolving/ Non-Revolving debt: Non-Revolving debt refers to paying off of the amount owed without the chance of other debt building up from that creditor. An example of this is a car payment. Once you pay off the car, you and who ever provided the loan have no more business. Revolving debt is how a credit card is set up. You may be able to add to the amount you already owe, which helps your problems in no way. Also, when this debt is settle the credit card company is happily waiting for you run that debt up again. Find a way to pay off these revolving debts and put the temptation away.
Finally…
Make sure that the order you want to pay everything off fits well with any foreseeable expenses you may have such as christmas or vacations and plug all of the amounts and timetables into our Debt Calculator. Eureka! This is the express train to financial freedom you were hoping to find when you first strolled across this article. Settle into this finely tuned payment schedule and watch as the debt melts away.
-Click on any of the corresponding links I’ve provided below to quickly access information about a certain topic.
Free Debt Counseling with GreenPath
A Guide to Mortgage Refinancing
Ways to Make Extra Money
How I Got Out of Debt is a comprehensive Debt Help site with stories, advice, and counseling from people who were once in debt.