Once you have determined how much money you have available to allocate to debt repayment, it is time to develop a personal get out of debt plan. Keep in mind that getting out of debt will take much longer than it did to get into debt, and it can prove to be very difficult. In offering the following advice I am making two assumptions about your financial situation.
First I assume you are ready to get out of debt and that you have made the full commitment to yourself and family. You are tired of the pressures, uncertainties and the deliberating effects of this burden in all areas of your life. And second, I assume you are up to date with you mortgage payments or rent, utilities, phone and other priority expenses. If you are not then you must make sure these essential payments are up to date before you can start working on your debt.
It is essential that you have enough money to be able to work (in order to generate income), keep a roof over your head and food on the table. What is the best way to use the money you have available to allocate to debt repayment to pay off your current debts? One of the best strategies is to pay off the debt that is charging the highest interest rate first. This is true regardless of the outstanding balance on any of your debts.
The reason for this is simple; every pound of unpaid debt that you carry from month to month costs you the most in real money. In some cases your minimum payment on this high interest debt may not cover the total amount of interest that is added to your accounts balance each month. Therefore, on the next month's bill, you are charged interest on the prior month's interest.
If your payment is late, the creditor will add a late fee to your balance. If the build-up of interest takes you over its credit limit, another fee is added. To be blunt: your bad situation will only get worse. You are in a lose-lose downward spiral. Create a list of debts in order of percentage interest rate. It is important to use the annual rate, not the monthly rate that appears on many statements. If you cannot find the annual interest rate, phone up the credit card issuer.
Arrange the interest rates in descending order, beginning with the debt that charges you the highest rate. This will establish the sequence and rescue plan in which you will pay off your debts. If two or more debts charge the same, the one with the larger outstanding balance must be placed first. It must be followed by the one with the second largest balance. Also add in your list the amount of outstanding balance and the minimum payment amount.
How to allocate your money to the list >
1. Only pay minimum payments on all your debts except the top one.
2. Once all the minimum payments have been paid allocate the remaining money to debt on the top of the list.
3. Continue with 1 & 2 until you have paid off the top debt on the list then begin again with the second debt on your list.
First I assume you are ready to get out of debt and that you have made the full commitment to yourself and family. You are tired of the pressures, uncertainties and the deliberating effects of this burden in all areas of your life. And second, I assume you are up to date with you mortgage payments or rent, utilities, phone and other priority expenses. If you are not then you must make sure these essential payments are up to date before you can start working on your debt.
It is essential that you have enough money to be able to work (in order to generate income), keep a roof over your head and food on the table. What is the best way to use the money you have available to allocate to debt repayment to pay off your current debts? One of the best strategies is to pay off the debt that is charging the highest interest rate first. This is true regardless of the outstanding balance on any of your debts.
The reason for this is simple; every pound of unpaid debt that you carry from month to month costs you the most in real money. In some cases your minimum payment on this high interest debt may not cover the total amount of interest that is added to your accounts balance each month. Therefore, on the next month's bill, you are charged interest on the prior month's interest.
If your payment is late, the creditor will add a late fee to your balance. If the build-up of interest takes you over its credit limit, another fee is added. To be blunt: your bad situation will only get worse. You are in a lose-lose downward spiral. Create a list of debts in order of percentage interest rate. It is important to use the annual rate, not the monthly rate that appears on many statements. If you cannot find the annual interest rate, phone up the credit card issuer.
Arrange the interest rates in descending order, beginning with the debt that charges you the highest rate. This will establish the sequence and rescue plan in which you will pay off your debts. If two or more debts charge the same, the one with the larger outstanding balance must be placed first. It must be followed by the one with the second largest balance. Also add in your list the amount of outstanding balance and the minimum payment amount.
How to allocate your money to the list >
1. Only pay minimum payments on all your debts except the top one.
2. Once all the minimum payments have been paid allocate the remaining money to debt on the top of the list.
3. Continue with 1 & 2 until you have paid off the top debt on the list then begin again with the second debt on your list.
For more information and detailed debt advice visit Debt Relief or go to Financial Loans where you can find expert help on finding a loan to suit your financial situation.
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