Creating a Debt Reduction Plan

							Creating a Debt Reduction Plan
A surprisingly large number of people with debt will simply pay the bare
minimum payment amounts they're told to pay. Sadly, when you're over-
burdened with debt it's often difficult to see a clear place to start!
Here's an easy plan to help reduce your debts.
1) Add It Up
Before you can get to your destination, you need to know your starting
point. This means adding up everything you owe to everyone. Write it all
down in a list, putting the name of the company alongside each debt
figure.
When you know your total debt figure and how much you owe each person or
company, we're ready to move to step 2).
2) Prioritize
From your list above, figure out which company is charging the highest
interest rate. Check your statements if you're not sure. Write down how
much you're being charged each month in the column beside the debt
figure.
3) Payments
List down how much you're currently paying off each bill. It really adds
up - but don't worry too much about this figure for now. We are still
figuring out your starting point so that we can create a strong plan to
get rid of it all
4) Negotiate
Ring each company and see if they're willing to negotiate on fees or
rates. Even a small cut in either the fees or rates will see your monthly
repayments drop a bit. This will help! Write on your list the new
repayment amounts.
5) Change Frequency
Just because your bill says "$100 per month" - that doesn't mean you need
to pay it exactly monthly. As long as the company has $100 by the end of
the month, it's fine to pay $25 per week instead. The company is happy
because they're still getting the same money - but your credit score will
improve, and you'll really be paying off your debt faster than you think.
The reason for this is that interest on debt is charged daily and shown
on your statements monthly. So if you're reducing the amount of debt
every week, the amount of interest the lender can charge you goes down a
little bit each week too.
Over time you will notice that you're paying off debt faster than you
thought just by cutting out some of the compounding interest.
6) Create Your Plan
By now you should know which is the most expensive bill outstanding. Any
money you saved in previous tips should now be put toward the bill with
the highest interest rate. Pay more frequently and round up any odd
amounts (e.g. if your bill is $24.50 per week, round up to $25 per week).
It's not much, but it really adds up over the long term.
7) Action
Once you've started reducing the amount of debt on the highest bill, you
should see a 'snowball' effect' happening. Don't give in and don't buy
more things on credit. Keep paying down your debt until it's gone.
Once you've paid off the first debt, you should be able to put that SAME
money onto the next debt. (e.g. if you've been paying $25 per week off
the first debt, when it's cleared ADD that $25 to the amount you were
paying on the next debt in line).
If you stick to this, you'll find your debt levels dropping in no time!
Bianca Raven is a qualified financial advisor and freelance finance
columnist. You can see more of Bianca's finance tips at her blog:
http://debt-free-lifestyle.blogspot.com