One of the biggest problems for most people today is that it is very easy to recognize that you have problem with debt but very to recognize precisely how large that problem is. In fact you could be surprised to discover that a very significant proportion of those individuals with a debt problem do not have any idea how much they owe or how much in total they are paying out in interest on their accumulated loans each month. So, the initial step in dealing with your debt is to discover precisely how large the problem is.



Sit down and list out all the debts you currently have, separating out how much of the original debt remains outstanding and how much you are paying each month. You should also 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 could be stunned by what you discover, not only in terms of how much money you owe, but in terms of how much of your monthly income is simply being used to repay interest. For instance, if you are earning $4,000 a month and are having to pay $400 every month in interest then this means that you are paying out 10% of your monthly income without reducing the overall amount you owe. Now this might not sound too bad, but take it one stage further. If $400 is the maximum you can afford to pay out every then you can continue paying this sum for years without your debt going down at all.

With any luck the difference between the amount which you are having to pay in interest and the amount being used to repay the principle of your loans will be reasonable and it is hard to say exactly what this should be as it will change from one loan to the next. For instance, in a normal home loan it is not unreasonable to pay 90% interest and 10% principle in the starting years of a mortgage, but you most certainly do not want to be paying this on your credit card debt.

Once you have worked out how large the problem is the next thing you have to do is to construct a plan to pay down your debt as quickly as you can. For this you will need to work out how much in total you can afford to pay off every month and then work out how this sum should be applied to your various debts.

One answer is sometimes referred to as the 'snowball' method and involves paying off your smaller debts. You then have a greater sum of money available to apply to the remaining debts and can progressively work your way up towards your biggest debt.

A second answer to the problem is to tackle the largest debt initially and so save the most money in in essence wasted interest payments. However, this is not an easy method and progress tends to be slow making it hard to stick to this particular plan.

Whichever plan you follow you cannot simply ignore one or more of your debts while clearing the others or you will run into trouble with your lenders and adversely affect what might already be a damaged credit record. If meeting at least the minimum payment on all your loans then you will need to speak to the lenders concerned and see whether they are prepared to assist. Most lenders will have a debt reduction settlement program and they will normally agree to help you by accepting lower payments for a short period, or possibly even to waive your payments for two or three months, if you clearly explain your problem to them.

If you have got yourself into a mess and are trying to work out how to get out of debt then do not make matters worse by taking on more debt. This might seem to be obvious but you would be surprised by how many people try to borrow their way back into credit. This never works and just makes a bad situation even worse.