How to become debt free
Debt is a growing problem for millions of people and getting rid of debt is on the wish list of everyone. But it is an not easy thing to do and you need lot of sacrifice and commitment to do so.
It is stated that the average American family caries a credit card debt of about $15,000 besides car and mortgage payments. With average 15% rate means that the debt of almost $15,000 will add up annually and the debt will keep on increasing if some drastic measures are not taken. If you choose to pay off minimum payments then it will take you almost ten years to clear the debts.
The following steps will help you pay off the debts:
The first step is to believe in yourself that you will pay all your debts. Once you have that belief then take a piece of paper and write down all the debts in the order of highest interest rates first.
Then make another list which should include all your financial commitments and necessities like rent, gas, food, utilities, clothing, entertainment and all other expenses. Add all of these expenses.
Next step is to calculate your net income from all sources. Deduct the expenses from the net income. The figure that comes out at the end is called discretionary income. This amount will be paid to pay your debt. If the figure is too small then what you will need to do is cut down on your expenses in order to generate funds to pay debts or secure a second source of income, if possible.
You can also sell some of your assets and use their proceeds to pay the unsecured debt having the highest interest rate. We hate this, though.
The unsecured debts with highest interest rates should be your priority and most of your discretionary income should be spent to get rid of them and use much smaller portion for all other debts. Keep doing this until all of your unsecured debts are paid off and then pay secured debts like car payments.
Debt settlement
If you have other investments in the shape of bonds and stocks, then decide which savings you are willing to sacrifice in order to pay down the debt. Add these proceeds with the sale of your unnecessary assets.
Now the most important step is to contact your creditors with highest interest rates first. Then negotiate with their supervisor and ask him to give you a total which will be acceptable to you in order to make a full payment. Ask for a letter from your creditor mentioning that total payment after which you will be free of their debt. Remember that settling for less money than you owe is possible only if you are more than three months behind your payments. Furthermore, you should make certain that this step will benefit your credit score. Clarify this point. It is always preferred to seek legal counsel.
Finally, pay your creditors as promised in full and ask for confirmation letter that all the debt has been paid in full.
After paying off one creditor, use that payment to settle the debt from another creditor with highest interest rate and so on.
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