Debt and Debt Relief

Debt Reduction seems to have become fashionable and its not considered a dirty word anymore. The biggest factor contributing to this perhaps is the financial turmoil and resulting economic slowdown we have experienced from 2008 to the present. Different circumstance gave rise to this change in attitude. For many it was not a choice, but simply imposed on them by losing their jobs or other situations, for others it was simply the impact of events that made them decide that debt reduction was the right thing to do.

Below I give you a methodology that you can use to slowly reduce debt. While I do not pretend this method will work for everyone, it will at least give some a start. Depending on your circumstances seeking professional help is a good idea.

This will reduce the time and increase the amount of money you can save. In the end the big benefit of this process is reducing the stress in your life and achieving financial freedom. Using professional may have a cost, but the benefits derived are normally much greater thank try going at it alone.

The Debt Reduction process is as follows:
You need to first organize debt into three piles, which are::
Mortgages – Mortgages are loans against real estate, usually your principle residence. This type of debt of some important advantages, first the interest gives you a tax deduction and secondly, it may be usable to reduce other debt that is much higher in interest.
Installment Debt – This This type of loan is payable for a fix number of months at a fixed interest rate. This would include cars, bank loans and similar.

Revolving Debt – This is usually credit card debt or other similar debt that the interest is added to the outstanding balance every month. This means that even if you are paying the minimum payment every month, it might take 8 to 12 years or longer to pay the debt off. You interest is not fixed either, which means they can raise as they wish.

This past year we have witnessed credit card companies raise their rates as high as 30%, but this does not include other fees charged such as annual fees. The biggest problems encountered are with revolving debt, naturally this is what debt reduction should address.

• The first step, which seems the most obvious is to make a conscious decision to become debt free/ and make commitment to stick to your goal achieve it.

• Next you should determine the type of debt you have, outstanding balances and monthly minimum payments. I suggest building an Excel worksheet that has columns for type of debt, name of creditor, interest rate, outstanding balance, monthly minimum payment and any other information you deem necessary.

Then add the two columns for outstanding balance and minimum payments, this will tell you how much you owe and how much you need to have available each month for the minimum payments.

• Make a budget. You already have the numbers for the amount you need to service your debt. The budget should include all other normal and necessary expenses including, rent (if any), utilities, insurance, food, clothing and anything else that is recurring.

• Test your budget for a period of time, 3 months is usually good to determine if it need to be tweaked. When you have established that the budget is valid, then you can begin your debt reduction program.

• With any excess money each month dedicate it to eliminating debt. If you can pay a little extra on each account, concentrating on reducing the most expensive or revolving debt first. As you pay of your debt the budget surplus becomes bigger each month and you monthly payments less. This give you the ability to pay eliminate debt faster.

• Party!! And enjoy your that you have begun your journey to financial freedom, now you can treat yourself to something special, without incurring any debt of course.

• Go back to step 5 and keep going though the cycle until got rid off credit card and all other debt. Repeating this cycle has the avalanche affect and before you know it you will have become debt free.

You may look at the above process and say to yourself that its not applicable in your case or numbers are not your thing. Don’t despair or lose hope. There are many cases in which the above is not workable or the situation seems very difficult.

You only need professional advice from those that can help you eliminate debt. Depending on your particular situation they will tailor a debt reduction plan for you and help you become debt free.. I still believe that it’s a debt pay off.

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