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Getting Out Of Debt

A powerful debt elimination plan

Getting out of debt is a goal shared my most Americans, but it seems like such a hard thing to do. But you can get out of debt of you develop a plan and stick with it.

The method for getting out of debt is

  1. Set a total monthly amount dedicated to debt repayment.
  2. Pay all minimum amounts due on your debts.
  3. Pay any and all extra money on the debt with the highest interest rate.
This method will enable you to pay the least amount of interest and pay off your debts as quickly as possible.

The secret to paying the least amount of interest possible is to pay extra money toward the one debt with the highest interest rate. You want that high interest debt paid off as soon as possible because it costs you the most in interest charges each month.

The simplest way to pay off your debts in the least amount of time is to set a fixed total payment amount to pay each month. The downfall of many debtors is that they only pay the minimum payments due on each debt. But these minimum payments are designed by the lender to keep you paying that high interest rate for as long as possible. You need to foil their plans.

By paying a fixed total amount on your debts each month, as one debt gets paid off, you'll have more money to pay towards the next highest interest debt. This is often called the "snow-ball" effect of debt elimination.

But first you need to determine your ability to pay. If your total payments are already more than you can afford, you're in trouble. You probably need to contact a non-profit credit counseling agency. You can find them listed in your local telephone book or on the internet. 

But be wary of dealing with companies that insist on an up-front fee. Check with your local Better Business Bureau for recommendations.

Next, you must make a commitment to stop getting deeper into debt! Cut up your credit cards or lock them away where you can't easily get them. If you're living a credit-based lifestyle, you'll soon dig a hole that you can't easily climb out of. 

Stop spending more than you make each and every month. Don't count on future bonuses, tax refunds, inheritances, or other windfalls to bail you out.

It's really quite simple: If you make $2500 a month, you can't spend more than $2500 a month! Look for areas to cut back in and purchases you can postpone (or not make at all).

Now, let's examine each step of your debt reduction plan more closely.

First, figure out how much in total that you can afford to pay each month toward your debts. The bare minimum should be the total of all your minimum payments for the next month. 

You may need to closely scrutinize your spending for the last few months. Identify things you can do without for a while. Put off new purchases and cancel unnecessary subscriptions. Look for every opportunity to free up more money to pay off your debts as soon as possible.

You should even consider pausing your investing for awhile. Think of it this way: Are your investments earning more than the 18-21% you're paying on your credit card debts? If not, you'll "earn" more by repaying your debts instead of investing.

Once you have determined your total monthly debt repayment amount, you need to record each monthly debt that you're paying. Write down the creditor's name, the current balance, and the interest rate that you're paying. Next, on a separate sheet of paper, reorder the debts so that the debt with the highest interest rate is on top of the list.

Now, as each monthly bill comes in, pay the minimum amount due. Subtract that minimum payment amount from your set monthly payment total. After all the bills have been paid for the month, take any money that is left over and pay that amount on the debt at the top of your list (the one with the highest interest rate).

You can make an additional payment this month, or simply save the money to add it to next month's payment. But whatever you do, don't spend it!

As each high interest debt is paid off, cross it off your list. But it's absolutely crucial that you keep paying the total monthly amount you set at the beginning. This will speed up your debt repayment and save you hundreds or even thousands of dollars in interest charges on your debts.

Every time another debt is paid off, you have that much more money to pay on the next highest interest debt. This is the aforementioned "snow-ball effect"!

Remember, the two keys to your debt elimination plan are to:
  1. Stop getting deeper into debt and...
  2. Set your total monthly debt repayment amount and stick to it month after month.
The rest is easy. Before you know it, you'll be debt-free!

David Berky is president of Simple Joe, Inc., a marketing company that sells simple, easy to use financial software.

Debt Consolidation Loans - Lower your monthly debt payments, and prevent filing personal bankruptcy.

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