Financial debt is now a major concern to many millions of people in the West; for many people admitting the problem is the hardest part, but it must be done otherwise the situation will never improve. There are many ways to provide debt relief but whichever you choose, you must have a degree of commitment to being debt free or it will not work. It is essential to manage debts carefully and get rid of them as soon as possible.
The first thing to avoid is being disturbed by the situation as this will hinder any positive action on your part. Even if you have taken out a large loan perhaps to pay off previous debts, it is imperative that you continue to pay if you want to clear the outstanding balance.
Create a budget for yourself by adding up all your income, payments and expenses which will help you check where your money is being spent plus your budget will highlight all the small, unnecessary expenses that can be eliminated. It is a fact that when you pay for goods or services using cash instead of your credit card that the spending will automatically reduce.
It is not uncommon to find people who owe lost of small debts which can be cleared by saving small amounts of money regularly in a debt relief fund. Placing restrictions on how much entertaining you do whether it is a complete stop of all restaurant meals or a dramatic reduction you will ensure your fund grows faster.
Sometimes when the debt is large, people decide to refinance their homes to help pay off their debts but this means taking on a bigger mortgage so it is best to avoid this option if possible. Before you go down this route you must think about why you want this option when there are others that can be used.
It is not uncommon to find people withdrawing cash from their credit card to make a payment, which works but just increases the amount owed. Where the situation is so bad that there are no other solutions, then bankruptcy should be considered but only after an in depth discussion with a debt counselor or a bankruptcy attorney.
Unfortunately, some people in debt avoid bankruptcy and resort to using their individual retirement account to help pay their debts but you are on a slippery slope if you take this route. There is far too much to lose with this option so you would be better advised to find alternative answers and learn debt relief methods that are more fiscally responsible.
The answer is YES! You can do it without having to cut out all of your fun and extra-curricular activities as well. Now, you may need to cut down on going to the movies or going out to eat, but you will not have to stop altogether. It is a matter of putting together your plan and then sticking to your plan!
The process is fairly simple, most people just don't realize it. Anyone can get started right away, including YOU right now! Here is what you need to know:
1. What is your total net income?
2. What are your debts and minimum monthly payments? (Don't include any extra money you are paying towards any debt. You want only your minimum required monthly payments.)
Okay, are you ready to begin?
The first thing you need to do is take a percentage of your NET income (a good beginning point would be 5%) and write this amount down at the top of a blank sheet of paper.
Next, write down each of your debts (not including utility bills, insurance payments, property taxes, etc.) in a column at the left side of your page. Beside each debt, write down your total balance and then your minimum monthly payment.
Once you have all of these down, divide your total balance by the minimum monthly payment. Write this amount next to each debt. Taking the debt that has the shortest payoff number, number this number 1. Taking the next shortest payoff, number it number 2 and so on until each debt has a number next to it. These numbers indicate the order in which you will begin to pay off your bills.
Now, here is where your 5% comes into play. For debt number 1 take the minimum monthly payment and add it to the 5% figure. Divide the total balance by this new amount to get the total months it will take to payoff the debt. For debt number 2, you will take the minimum monthly payment plus the 5% plus the minimum monthly payment of debt number 1 (since it will be paid in full) and add them together. Again take the total balance and divide it by your new monthly payment to figure your total months to payoff. Do this with each debt until you are finished.
Once you have completed this, add up the total months to pay off your debts to figure an estimate of how long it will take you to pay off all of your debt.
Example:
Visa total balance $6300.00 divided by minimum monthly payment of $153.00 = 41 (months to payoff) 2 (second to payoff)
Auto Loan $13000.00 divided by minimum monthly payment of $356.00 = 36 (months to payoff) 1 (first to payoff)
Mastercard $5266.00 divided by $96.00 = 54 3 (third to payoff)
Mortgage $43,000.00 divided by $325.00 = 132 4 (fourth to payoff)
The auto loan is the first to payoff because it has the shortest amount of time before it is paid in full. Then your Visa balance and so on.
Net Income = $1500.00 x 5% = $75.00
Taking your first debt to payoff which is the auto loan:
minimum payment $356.00 + $75.00 = $431.00 total balance $13000 divided by $431 = 30 (months it will take you to payoff this balance using additional 5%)
Visa: $153.00 + $75.00 + 356.00 (since this loan amount is paid in full) = $584.00 total balance of $6300.00 divided by $584.00 = 11 (months it will take to payoff credit card)
Mastercard: $96.00 + $75.00 + 153.00 + $356.00 = $680.00 total balance $5266.00 divided by $680.00 = 8
Mortgage: $325.00 + $75.00 + 96.00 + 153.00 + 356.00 = $1005.00 total balance $43,000.00 divided by $1005.00 = 43
Add your months together: 30 + 11 + 8 + 43 = 92 approximate months to have all of your debt (including you home) PAID IN FULL! This is about eight years! Can you imagine being debt free in eight years? That means that your home would be free and clear and you would have 100% equity!
If you apply the above formula to your financial situation, you can be debt free without getting a second job or without working extra overtime! Imagine the time you can spend with your family and friends instead of working. Of course if you take a higher percentage of your net income, you will pay off your debt faster!
This is something that anyone can do based on simple math. The trick to remember is to NOT use your credit cards. In fact, cut all but one up! Get rid of them and just keep one in case of a major emergency. Start yourself a savings account to begin building up your emergency funds. Eventually set goals for yourself to save for college funds, retirement funds, etc.
Both Anthony Dean & M. D. Robinson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Anthony Dean has sinced written about articles on various topics from Personal Finance, Debt Consolidation and Debt Reduction Consolidation. Anthony Dean has helped thousands reduce their debt. Find out how he can help you.. Anthony Dean's top article generates over 22200 views. to your Favourites.
M. D. Robinson has sinced written about articles on various topics from Mortgage, Work From Home and Careers and Job Hunting. M.D. Robinson is the webmaster of several neat sites where you can find useful and Free information along with many how-to articles that cover a large variety of interesting topics.. M. D. Robinson's top article generates over 135000 views. to your Favourites.