DebtEliminationTips

If you wanted to eliminate your debt , what recipe would you follow. A recipe for success includes using the right ingridients and following a properly laid out plan.

The first step for eliminating your debt is to build a solid foundation, this would include the most basic thing of creating a budget. The reason this is so important is every decision that you make has to be decided around how much money you have available . Not having a monthly budget is one of the biggest reasons that people get into trouble in the first place, it is very easy to over spend if you don’t how much money you have available. Creating and maintaining a budget is not the funnest thing in the world to do but will take all the guess work out of your life, so sit down and get to it asap.

Now that you have your base for your debt elimination recipe it is time to start planning out what plan of attack is going to make the most impact . Lets for a second consider some possibilities based around results from your budget numbers, both where you have extra money and where you don’t.

Example one: For the first example lets say you are managing your bills and your budget shows you are actually going in the negative by about 40 dollars every month, covering the extra costs with your savings. The first red flag is that you are using money designated for savings so that will slow any possibilities of this money growing. You will also find that you are making the bear minimums on payments and you will never to get ahead of your debt and the interest costs will be outrageous.

Example two: On the second example we have determined that above and beyond your bills that you have a 50.00 surplus. This is an awesome thing, but what should you do with it.? Put it in the bank would certainly be an option , however when you add up the amount of interest you make you will find that it isn’t worth it. Lets now consider what would make more sense for you to do with the extra income. Currently you have 7 things you are trying to pay off, but obviously we are going to concentrate on one at a time for maximum efficiency. For demonstration purposes lets say we are working on a credit card with a 5000.00 balance and our current monthly payment is 180.00 and out of that payment our interest charge is 100.00 so our actual principle reduction is only 80.00 . This is not very efficient and you are giving away more than half of what you are paying, now this is purely an example and may not be accurate based on your numbers but you will get the idea. In further diagnosing this example consider the following, to pay 5000.00 currently it will take approx 5.2 years to pay off. To help you out here is the formula you can use to determine this information, 5000 Divided by 80 Divided by 12 . These are raw numbers but will be accurate enough, now lets consider how the 50 dollars will fit into the plan.  You were currently paying off 80 per month now add the 50 for a tatal monthly reduction of 130 per month , this will decrease how long it takes to pay off to 3.2 years. Awesome starting numbers I would say, but it gets better each month as the increase in principal payments will decrease the  interest every month so re-run your formulas for updated numbers.

These are the 2 most common scenarios you will run into and once you know where you stand then you can take action and you can implement your recipe for a successful debt elimination.

This post was created by http://www.debt-elimination-services.net

Debt Elimination is a very obtainable goal if you understand some key concepts, I will be discussing one key piece here today. In our previous post we discussed the importance of having a proper household budget created , if this hasn’t been done please review my previous post on budget creation .

Now we will consider how knowing our budget comes into play in obtaining our goal of debt elimination. I have a task I would like you to complete before reading on as it will help you fully understand why it is so important for you to consider eliminating your debt.

1. Take a handful of your Credit Card bills, Car statements and review them carefully. Interest rate is certainly important but we are not concentrating on this at this time, you will hopefully understand why in a few.

2. Take the payment you made and subtract the interest charge giving you your actual principal reduction off of your balance. What you are going to see is a huge number difference, credit card companies have this formula down pat and this is by design. Now for the part that should motivate you, take the interest charge and multiply it by 10. This is the amount of money you are giving away in 10 months, in most cases this figure is staggering especially considering you probably have several interest accounts doing this same thing. This is the sole reason most people cannot get out of debt.

Now that you have completed this homework assignment , lets now consider what we are going to do about it. If you have not realized by now you are not making efficient payments and until you correct this your debt issues will never improve.  Now is the time for us to get to work in correcting this so that you can breathe easy and stop giving away your retirement money, you have accumulated this debt and must morally pay it off. But it doesn’t need to cost you your retirement , even though your credit card, car , mortgage companies will gladly take it from you. I will now lay out the most powerful things you change today that will change your financial future.

1. Identify all your interest accounts from lowest balance to highest, we do this for a reason as I will explain as I go along.  Remember as I statetd before you are not making efficient payments, I am fairly confident in this even without seeing your numbers. In order start making efficient payments we need to start attacking the piece that is causing you to stay in debt, we will use a systematic approach to wipe out all your debts. So how exactly will we accomplish the goal of complete debt elimination, we will use a combanation of techniques that will all the same common goals. Follow the process we show you and you will systematically break the interest cycle on your accounts , this will allow you to make more efficient payments . You will pay less in interst and more towards principal every month which will drastically reduce the time you stay in debt . The goal will be to continue to pay the same total amount on all your debts in total but will shift the dollars around to make the payments with the lowest balance more efficient. Let me briefly explain why we are concentrating on the lowest balance, understanding that we will not pay any less for out total debt . Heres an example to help you understand how this will impact your end goal .

Example: You are paying 2000.00 a month total , 1100.00 for your mortgage, 250 for your car, 275.00 for credit card one, 175.00 for credit card 2 , 120.00 for your department store card, 80.00 for your Best Buy card. You are strugglimg to get put of debt but can never seem to make a dent before the next emergency arises. This is actually how the credit system has been  designed and for one reason, keeping you in debt for as long as possible . Now lets flip the coin here and show you how to break the interest cycle  on your credit cards and how this will benifit you.

Proposed solution: You will always pay the minumum on all cards except for the lowest balance card, so as the minimums are lowered on any cards lower your payment on that card and increase the payment on the lowest balance card. Why is this important ! making an 80.00 payment on a card that charges interest will be like throwing money away … can you imagine how bad the numbers will look on debts with higher balances. Here is how we will accelerate your payments going forward , follow these steps and you will start seeing results within the first month .

1. To start the process you will need an additional 80.00, even if you have to save a while it will be worth it. You will make your normal scheduled payment at the end of the month, then start making regular weekly payments to your card with the additional 80.00 (20.00 per payment ) that you have saved up. Here is what will happen, each payment that you make will reduce your principal balance and thus the interest charges will be reduced immediatly. You will first notice that your interest charges will go down faster then ever before and then your minimum will start to follow, howver do not lower your payment . If you lower your payment you are playing with their deck of cards, it is time for you to deal your own hands.

So the instant effect will be that you will be increasing your principal payment on the card with the lowest balance. Lets now add the second effect as discussed breifly which I will now go in deeper details. In this example we have 3 cards that will adjust their minumums based on balance, typically you will see a drop of about a dollar a month. So lets go with this information for the moment and assume this is correct, this will give you 3 additional dollars to add the lowest balance card . Now doing some simple math this will have increased your minumum by 30 dollars, you will now be making a much more efficient payment and the balance will decrease faster and faster till gone. Obviously adding to the amount you pay will increase the efficiency and allow to start tackling the other cards faster. Each balance you eliminate will give you more efficiency as you will be adding the previous payment to the current minimum (paying weekly - divide paymetn into 4 equal payments) . It is not efficient to try and tackle all your cards at the same time, you will not have the money to do so and it will not achieve your goal as fast.  Yes you will probably succeed in lowering your minimums but will not systematically liquidate your debts fast .

The information in this posting may seem a little confusing at first but trust me once you get it wou will be on your way towards total debt freedom. My company helps our clients accomplish this task on a regular basis so feel free to contact us if you need help planning your debt elimination plan.

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There are many steps you will take to gaurantee results when trying to eliminate your debt , however one of the most important steps you will have to take is creating a household budget. As a matter of fact it is one of the most important step you will take .

To eliminate your debt you will need to consider the following when it pertains to yuor goals. How much extra money on top of your bills and expenses do you actually have to tackle your debt.? Are you actually spending more money per month then you are making , this could also help you isolate steps you need to take to meet your goals.

Step One: Using paper, or your favorite word processor /spreadshhet program, document every dime you are spending . Do not exclude anything that you are spending money on currently, even if you need a misc catagory to cover items that do not fall into any specific catagory.

Step Two: track your budget monthly so you know what financial numbers you can work with on a regular basis. If you have money left over we will discuss what to do with it in a later post. However if you find that you are falling short , having to put off paying bills, or have very little to spare at the end of the month . Use your budget to make adjustments as needed, these may not be easy decisions but will be necessary.

This should get you started with the first and certainly most important steps towards financail and debt freedom, do not take these lightly as your goals will be effected. In the event you need assistance with preparing a budget and putting your debt elimination plan into action , then feel free to contact me through my site and I would happy to assist you.

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