Get Smart With Debt - Pay it Off!

by : Erine Adams

Feeling the crunch? Dread opening the mail? Want a better life with less stress? Lets get started.

First order of business, define your debt. A typical middle income family will have a car payment, mortgage, credit cards, student loans, and miscellaneous debts. There are a few ways that the debt should be categorized.

  1. Revolving/Reoccurring: These debts are often set to be paid on a monthly basis. Bills such as cell phone, credit cards, and utilities fall into this category.

  2. Termed: Car loans and home mortgages fall into this category. These loans have an agreed upon balance and a set term for repayment.

I believe that splitting the bills into two categories will help to determine what is going to be a priority for repayment. Now, don't let the last statement mislead you. It is imperative that you must remain or become current on all payments. If there are any debts that are delinquent, you must first assess your budget to find the reason why they are not being paid on time and make whatever sacrifices necessary to bring them current. That being said, we will continue with the assumption that all payments are on time at this moment.

Now that you have two categories, arrange the debts by balance in their respective categories. Are there any that could be eliminated in a short period of time? Department Store cards often have a lower balance than national cards and a higher interest rate. Focus on eliminating one bill that carries a higher interest rate and a reasonable balance. By plugging one of the leaks in your financial bucket you will not only free up a sum of money that can now be focused on the next target but also support a sense of accomplishment. Once that balance is gone, cut up the card, close the account and eliminate the temptation of adding more debt. You can then take the amount of money you were applying to that balance and forward it on to the next victim. Attacking the higher interest rate debt first will lessen the leaks happening in your bucket, eliminating the smaller balances will free up more working cash and we all know how important it is to have every one of our dollars working the hardest for us. Pick your targets wisely.

I am a firm believer that we can find 20% more available cash by assessing our spending habits. Make the decision to eliminate debt followed up with some easy changes and you are there! The focus of this article is to convince you to begin paying the debt in a rational, systematic, and productive manner. Freeing up every available dollar to apply toward your goals will speed the process.

Avoid the debt traps. Debt consolidation loans, second mortgages, and zero percent transfers, can generate a sense of progress toward debt management when it actually is creating opportunity to slide further into trouble. These offers, and yes they are attractive, free up available credit by moving the balances around, not eliminating them. The resolve to pay the balances off during a certain time-frame often wanes as the desire to acquire more goods and services preys on our impressionable minds. Marketing, a multi-billion dollar business, continues to focus on the needs and wants of us, the consumer, by working smarter every day to convince us that we need to buy their product. As the memory of the debt begins to fade away, make sure you close the account and cut up the card to ensure you are sticking to your plan.

Debt management programs and bankruptcy should be the last choice. The long term negative impact of the credit damage will far outweigh the hits your credit is taking with a higher debt to income ratio and some late payments. As a current payment history is established and balances are reduced, I am confident you will see a dramatic increase in your credit score and credit worthiness. Stay focused, remain positive, and congratulate yourself on your steps toward a stress free lifestyle. You deserve to celebrate the milestones that you achieve........just make sure you do it with cash!