TIP - Debt Reduction Remedy
You found your way in, you CAN get out!
According to the Consumer Credit Counseling
Service, it is estimated that, on average, 20% of
Americans have ?maxed out? their credit cards and
about 25% of adults in the United States have a
history of credit problems. Americans? average credit
card debt is $8400 per household and in the first
quarter of 2002, total credit debt was $660 billion.
So in a nutshell, the Federal Reserve reports that
more than 40% of American families spend more than
they earn.
These financial statistics are sobering, but there is
hope. You must take action to reverse a debt
situation that you may never have intended. Events,
circumstances and choices may have lead you into
debt and now may be the time to implement change.
If you find yourself or your family in debt and have
made a deliberate decision to pay down debt, then
below is a successful strategy that will help you
attack your debt with the goal of eliminating it.
Assuming you have created a spending plan (budget)
and you know exactly how much money is set aside
for debt reduction, and then I recommend setting up
what is commonly referred to as a "Debt Snowball."
This process is taught by Crown Financial
Ministries and simply put, it is a plan that lists
debts in a way that
sets up a snowball effect meaning you eliminate the
small ones first and you gain momentum as the larger
and larger
debts are eliminated until you are debt free.
The plan looks like this:
Create a table with the following columns:
- To Whom Owed
- Contact Phone number
- Pay off amount
- Payments left
- Monthly payment
- Date Due
- % interest
Then order
the list from the lowest amount owed to the highest
amount owed. Typically, for example a home
mortgage would be listed at the bottom of the list
since often this is the largest amount of debt carried
and perhaps a gas credit card with a small balance
would be listed at the top.
Then with the money you have set aside to pay
down debt start by eliminating the small debts first
by paying the maximum towards smaller balances and
minimum payments against the highest debt.
As debts are paid off you may end up rearranging the
order
you pay off debts when debts that are lower in $
amount carry a higher interest rate. For example you
may owe $1500 with an interest rate of 14%, then
the next debt is $1900 with a interest rate of 22%, it
makes sense to pay off the debt with the higher
interest rate first, then go back and pay down the
other one. As each debt is paid off move the
payment to the next higher until all your debts are
eliminated.
With a plan like this, you will find yourself regaining
control which is critical to long term success. Also,
you will have to work hard to maintain zero balances
on all the debts you have eliminated in the process.
You can quickly sabotage your efforts if you build
debt back up while trying to pay it down. It is kind
of like trying to walk up the down escalator, you will
never reach the top!
Creating a plan like I just described and sticking to
it over the long haul, will place you well on your
way to establishing healthier spending habits which
will yield benefits far beyond just financial.
If you would like to share your story of
becoming debt-free, please do! My e-mail address
listed at the end of the newsletter.
More Debt Reduction Resources from Crown
