Many individuals are burdened with an excessive amount of debt and if you are one of them, you might not see any way out. Even though the road might be painful, there is a way out. And you can do it yourself without help from a special agency or other debt relief solution.
What is the first step in getting out of debt?
It sounds very simple but first you need to know how much debt you really have and how many creditors you owe. When you are in the middle of a debt crisis you are probably just focused on the monthly payment and not the overall debt amount. Take the time to list out each of your debts including the remaining balance, the minimum monthly payment and the interest rate on the debt.
What is a good strategy for reducing debt?
One idea is the DIY debt reduction play which is targeting one debt to pay off first by making maximum payments to that debt and only minimum payments to all the other debts. Once the first one is paid off, then move to the next one and continue this strategy until your debt is completely paid off. It may require reducing expenses to maximize the payment amount to your targeted debt and making sure all raises, bonuses and tax refunds go to the targeted debt.
What should be considered in targeting the debt to pay off first?
There are two options, one is to target the debt that is smallest in amount so that you can quickly pay it off and move to the next one, creating a snowball effect. The other method is the avalanche method which is to focus on the highest interest rate first. The reason for this method is because it can save you interest expense overtime because you are paying off the high interest rate debt first. Both have pros and cons and one should review which has the biggest impact on their situation.
What does it take to make a DIY debt reduction plan work?
Three very simple rules:
- Don’t take on any more debt;
- Create a written plan that is tracked regularly and has accountability;
- Try to make your time line for payoff and it has less chance for success.
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Categories: Debt Reduction, Money Matters