A Plan For Getting Rid Of Your Debts

By: Donald Saunders
Submitted: 2008-06-15 22:30:41
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One of the biggest problems for many people today is that it is easy to recognize that you have a debt problem but very  to recognize just how large the problem is. You could be surprised to learn that a very significant proportion of those people with a debt problem do not have any idea how much they owe or how much they are paying out in interest charges on their accumulated loans every month. So, your initial job in sorting out your debt is to work out just how large your problem is.

Sit down and list out all the debts you currently have, separating out how much of your original debt remains outstanding and how much you are having to pay every month. You also want to separate out every payment to see how much of the payment represents a repayment of the original borrowing and how much is simply interest.

You might be taken aback by what you see, not just in terms of just how much money you owe, but in terms of how much of your monthly income is simply going to repay interest. For instance, if you are earning $4,000 a month and are paying $400 every month simply in interest charges then this means that you are paying out ten percent of your monthly income without reducing the total amount you owe. Now this may or may not sound too bad, but take it one stage further. If $400 is the most you can afford to pay out each month then you could go on paying this for years without your debt going down at all.

With luck the difference between the sum you are paying in interest charges and the sum going to repay the principle of your loans will be more realistic and it is difficult to quantify just what this ought to be as it will change from one loan to the next. For instance, in a normal home loan it is not unreasonable to be paying 90% interest and 10% principle in the starting years of a mortgage, however you assuredly do not want to be paying this on your credit card debt.

Having discovered how big the problem is the next thing you need to do is to draw up a plan to clear your debt as soon as you can. For this you are going to need to calculate how much you can afford to pay off every month and then decide how this money ought to be divided between your various different debts.

One possible solution is what is occasionally referred to as the 'snowball' approach and involves clearing your smallest debt first. You then have more money available to apply to the remaining debts and can steadily work your way up to your biggest debt.

Another solution to the problem is to tackle your largest debt initially and thus save the greatest amount of money in what is essentially wasted interest payments. However, this is not an easy method and progress tends to be slow making it difficult to keep to this particular plan.

Whatever course you choose to follow you must not simply ignore one or more of your debts while paying off the others or you will fall foul of your lenders and adversely affect what might already be a damaged credit record. If you find that coming up with at least the minimum payment on all your debts then you will need to talk to the lenders in question and see whether they are prepared to assist. The vast majority of lenders will have a debt reduction settlement program and they will generally agree to assist you by accepting lower payments for a short period, or even to waive your payments for a couple of months, as long as you explain your problem to them.

If you are in a mess and are sitting down trying to figure out just how to get out of debt then do not make things worse than they already are by taking further debt. This might appear obvious but you would be surprised by how many people in debt try to borrow their way back into the black. This never works and merely makes a bad situation even worse.

Article source: Expert Articles