Getting into debt is easy
It’s all too easy in this day and age to find that our credit card or overdraft balance creeps up to a point where we can't easily pay it off in full each month. Easy too to get into the mindset where we believe that the available credit on the cards is 'our money' and we should spend to that limit. Add in a mortgage, a car repayment and the utilities bills and suddenly we owe more money each month than we strictly have available.
We all know really that this isn’t a good plan, and that the interest on the repayments far outweighs the value of the goods or services originally bought on credit. Usually though, by the time you notice this state of affairs its can be very hard to see a sensible way out of it that allows for continuing to maintain a decent standard of living.
Getting out of debt is possible
It can be done though, and all you have to do is to apply a little bit of common sense and an idea that has been around for decades. There are programmes, DVDs, self help books and tutors out there who will charge you good money for an expanded, jazzed up version of what I'm going to share with you for free, and whilst for some people a full programme to follow is helpful, but if you can do some basic sums and make a decision to stick to your results, you can do this without spending another penny beyond your current budget.
The gist of it is simply that you need to channel the money you are paying back on all these debts into paying them off systematically, taking advantage of the fact that different debts have different interest rates, and as one is paid off it frees up more money to pay the next one faster.
Know your financial position
Start by writing down a long list of all your fixed bills, these will be things like gas, water, electricity, insurance; things that you cannot go without paying. Add to that the minimum sum you can sensibly spend on food, travel and all the other things that make your life function without going mad on luxuries. This is the running cost of your life, and you absolutely have to have that money each month to function at your current level. Where possible make sure regular bills are paid by direct debit soon after payday. This takes the worry out of remembering to pay them!
Take that sum away from your monthly income. This gives the amount you have available to tackle your debts. We are going to use this amount every single month now until the debts you need dealing with are cleared.
Tackle those debts!
The debts themselves now need a double approach. First, set up a regular payment to each one to cover the minimum payment allowable. This ensures that you don't get behind on anything, and ensures that those credit companies don't start sending you nasty letters or worse.
Hopefully, you still have a few dollars left in your debt clearing budget. Even if its just $10 or so it will make a difference. Make a list of the debts you want to clear. You need to know how much you owe them, what the interest rate is, and how long they have left to run. If any cannot be paid back fast for some contractual reason, you need to note that too.
How you determine the next bit is up to you. It usually makes sense to tackle the debt with the highest interest rate first, but if one debt has just a few months to run it can be psychologically more beneficial to get that one out of the way. What you need to do is put these debts in order according to which you want to pay off first.
Watch those debts shrink and vanish
All you do now is to use your debt busting money to pay off the top debt in your list first. Those small but regular extra payments will quickly wear them down, and because you have set up automatic payments for the others you know you can't get behind. When you pay off the first debt you’ll find your debt busting fund goes up dramatically, the next debt will clear even faster because you have more to put towards it. the third debt should be a breeze.
By the time the last debt is paid off you will be in complete control of your finances, and what’s more, you'll have a hefty sum available each month. If you are still using the credit cards, try to keep this system going and pay off as much as possible each month. if you have found your attitudes to money have changed and you no longer want to max out your card, that debt busting money will very quickly build your retirement fund. Don't believe me? Look at the amount you pay this minute on debts, then multiply that by 12 to give a years savings. That’s a lot of money.
Anyone can use this system to keep track of their spending and control debt. I hope it benefits you as it much as it helped and many others.
