Kill My Debts Now!

The first thing to remember is that it’s not just you. Debt is something that almost everyone has to deal with some time in their life. In fact, if you buy your own home, you will probably incur your biggest single debt ever – until you trade up for a larger property, at least.

But when people talk about being in debt, they’re not usually talking about their mortgage. It’s the other things that really cause problems – credit cards and other short term debt that can really mount up, until your total monthly payment is so high you find it difficult to keep up – and that’s when the problems start.

1. The first step in getting out of debt is to find out exactly how much you owe and to whom. So you need to sit down with a pad of paper, a calculator and all your bills – including regular payments like rent, taxes, food, fares or gas to get to work and so on.
2. Make columns on the paper marked Total, Annual, Quarterly, Monthly, Weekly.
3. For each outgoing, if it’s a fixed amount, put it in the appropriate column (annual, quarterly, monthly or weekly).
4. Leave a gap and list the accounts where you pay a variable amount; put the total owing in the Total column.
5. Once you have everything listed, convert the regular payments into monthly amounts if you are paid monthly (or weekly/fortnightly if that is how often you are paid).
6. Add up all the outgoings for the pay period. This is your total regular outgoings.
7. Subtract this from your income for the period to find the total available to pay the other debts.
8. Add up the totals for the variable payment amounts.
9. To prioritize these, find out the interest rate, and write it down next to each total.
10. Put a star next to any that don’t carry interest (if there are any). These can be paid off last, as they will not increase.
11. The others should be paid off as quickly as you can manage, so as to incur the least interest possible. The one with the highest interest should be paid off first (if there are two with very similar interest rates, pay off the smallest one first), and so on.
12. In the monthly column, write the minimum payment for each debt.
13. Add them up to get the total minimum debt repayment.
14. Is this more or less than the total available calculated above?
15. If it’s more, you need to cut down your other expenses as much as you can – perhaps make sandwiches and take the bus to work, instead of buying lunch and driving in by car.
16. Alternatively or as well, you could try and find a second job, or look into making money online as a way of increasing your income.
17. Do everything you can to sort out a bit of a “cushion” of spare money from each paycheck that you can use to help getting your debt reduced as quickly as possible.
18. Hopefully, you won’t need to go to these lengths, and you will find that you do have some spare cash.
19. Add this amount to the minimum payment you have listed for the most expensive of your debts (in terms of interest rate). This is the amount you will pay each month on that debt until it is paid off.
20. After you have paid the first one off, the total you were paying on that debt is added to the minimum payment on the next most expensive debt, and so on. In this way, although it may take some time to pay off the first debt, the second one will be faster (assuming they are about the same size), because you are paying more each month, and so on.

Credit cards generally come with a very high interest rate, compared to other types of borrowing such as overdrafts and personal loans. This means that, if you are only paying the minimum payment every month on your credit card, you can easily find that your payment reduces the total, only for it to be almost back where it was, once the interest for the month has been added.

It’s best to try and cut your credit card costs down as quickly as you can, and one way to do this is to sign up for a new credit card with 0% on balance transfers – and NOT to use it, but just transfer your existing credit card/s over to the new card. After you’ve done that, cut up your old card/s and also your new card, so that you don’t end up adding to your debt. Resolve to only use money you have – not credit – until you have paid off your debts.

This entry was posted on Sunday, October 5th, 2008 at 4:02 pm and is filed under How to get rid of debt. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.