Debt
Reduction: A Step - By - Step Approach
To Debt
Solutions
Most consumers have so
many credit cards and unsecured debt they sometimes don't
realize
just how much they
really owe.
In order to eliminate debt, consumers must
consistently spend less
than they
make,
not incur any new debt, and reduce their
existing debt.
Here is a step-by-step approach to help consumers work
on the problem:
- First, list all your bills
on a single sheet of paper in three columns: who you owe,
how much and the minimum monthly payment or use our free
Budget Worksheets.
- Then, look at your earnings
and spending.
"For those who think they know
where their money goes without keeping detailed
records, I issue this challenge: Keep track of every cent
you spend for one month.
I promise you'll be surprised and perhaps shocked by how much
some of your 'small'
expenditures add up to."
There are two ways to prioritize
debt repayment: smallest outstanding balance to largest
outstanding balance or highest interest rate to lowest interest
rate. In most cases, you
will eliminate your debt faster if you begin with the debt
carrying the highest interest rate,
most financial advisors agree you should prioritize your repayment
based on the interest
rate—highest to lowest.
With earnings, one should consider
every aspect. For instance, do you need to find a
part-time job to supplement your income? Can your tax withholdings
be adjusted to
increase your paycheck? Or can you simply create a
realistic budget and stick
with it.
The goal is to make sure that
every dollar is going to the right place.
This is most important when considering
the spending side. Someone with a $5 a day
latte habit can save several hundred dollars a year by simply
changing to regular coffee.
Consumers can also cut food bills by shopping at discount
stores rather than more
expensive neighborhood groceries.
There are a 101 ways consumers
can
save money and bring down
their expenses
by 15 to 20 percent and not even notice.
- The final step is to take
that extra money and apply it to credit cards and related
debts. The smart way is to go after the ones with the highest
interest rates.
We call this approach "Investing
in your own debt"
Test it using our
Debt Calculators
"The results will amaze you"
It's important for
consumers to switch to cash and debit cards until their
debt is under control.
Consumers who feel they need
help should consult a ,
who can help
them work out budget plans or get them into a debt
consolidation
program.
"Sometimes the most difficult
step is to actually speak to an advisor about your debt
problems"
"Consumers need to realize that obtaining professional
advice may be their first
and most important step towards being debt free"
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