A Very Simple Approach To Debt Reduction That Works.

by Tom Morrison - Date: 2010-07-08 - Word Count: 777 Share This!

Debt Reduction seems to have become fashionable and its not considered a dirty word anymore. The economic slowdown and financial chaos and the resulting uncertainty created have probably been the most important factor in this change. Some by necessity have had to take a hard look at Debt Reduction due to loosing their employment, while others simply impacted by what was going on around them, simply decided the getting rid of credit card debt and other debt was simply an idea that they had put off for too long and began to eliminate debt. Below I give you a methodology that you can use to slowly reduce debt. While I do not pretend this method will work for everyone, it will at least give some a start. Depending on your circumstances seeking professional help is a good idea. Using a professional mens increasing the money you save and reducing the time you spend on it. In the end the big benefit of this process is reducing the stress in your life and achieving financial freedom. Using professional may have a cost, but the benefits derived are normally much greater thank try going at it alone.

The Debt Reduction process is as follows:
You need to first organize debt into three piles, which are::
Mortgages Mortgages are loans against real estate, usually your principle residence. This type of debt of some important advantages, first the interest gives you a tax deduction and secondly, it may be usable to reduce other debt that is much higher in interest.
Installment Debt - This is debt that is paid at a fix rate for a set amount of time or months. This would include cars, bank loans and similar.

Revolving Debt This type of debt is almost synonymous with credit card debt were interest is added to the outstanding balance each month. Paying the minimum balance each month does not do much in retiring the loan and it may take 8 to 12 years or longer to do so.. The interest on it is not fixed, you may get an introductory rate at first which sextupled after the initial period is over. This past year we have witnessed credit card companies raise their rates as high as 30%, but this does not include other fees charged such as annual fees. Debt Reduction naturally should address revolving debt, which is where individuals encounter their biggest problems.

1)First part of the process is to make a personal commitment to debt reduction and that you will stick with it until its achieved.
2)Next you should determine the type of debt you have, outstanding balances and monthly minimum payments. I suggest building an Excel worksheet that has columns for type of debt, name of creditor, interest rate, outstanding balance, monthly minimum payment and any other information you deem necessary. Then add the two columns for outstanding balance and minimum payments, this will tell you how much you owe and how much you need to have available each month for the minimum payments.
3)Prepare a budget. You already have the numbers for the amount you need to service your debt. This budget also includes, rent (if mortgage is not included above), utilities, insurance, food, clothes and other normal recurring monthly expenses.

4)Test your budget for a period of three months and determine if any adjustment need to be made. Once you know you budget is representative of your monthly income and expenses, then you can begin to eliminate debt and begin your debt reduction program
5)With any excess money each month dedicate it to eliminating debt. If you can pay a little extra on each account, concentrating on reducing the most expensive or revolving debt first. As you pay of your debt the budget surplus becomes bigger each month and you monthly payments less. This by itself will allow you to reduce debt quicker..
6)Party!! And enjoy your that you have begun your journey to financial freedom, now you can treat yourself to something special, without incurring any debt of course.
7)Go back to step 5 and repeat the process until you eliminated all debt. Repeating this cycle has the avalanche affect and before you know it you will have become debt free.

After reading the above you like the process but either for one reason or another you cannot not apply the above process or working with budgets and number seems like a foreign language. Dont despair or lose hope. There are circumstances were the above methods may not be applicable. The solution is to seek a professional that will help you through the numbers jungle and eliminate debt. Depending on your particular situation they will tailor a debt reduction plan for you and help you become debt free.

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