Ways To Eliminate Debt
Debt is a problem that can spin out of control if it is not taken care of properly
. As debt is allowed to grow, a person's ability to pay it down becomes considerably more difficult.
While it is true that just making minimum monthly payments will eventually lead to a debt free life, debt can be eliminated so much faster if a person pays more than the minimum required amount. The difference can be thousands of dollars saved over the life of the balance. This is especially true of credit cards which traditionally carry higher interest rates than other loans. One method of debt elimination which takes advantage of this principal is called "The Snowball Method of Debt Elimination". More in debth discussions of this method are available online, but the basic principal is rather simple:
To begin, a person would make a list of their debts, lowest debt on top, highest debt on the bottom. Pay no attention to the interest rates. Only concern yourself with ranking debts from lowest to highest. Next, make sure to pay the minimum monthly payment on each debt, except for the smallest, which should be first on your list. For the smallest debt, pay the minimum monthly payment plus whatever else you can scrape up. When that first debt is paid off, the second debt can be focused on. The second debt will be paid the usual minimum balance plus what ever money you have saved since closing out your first debt. This is money that a person is already prepared to live without, so what better place to put that money than right back into the debt. This method uses psychological reinforcements to ensure the debt is paid off. While it is true that paying off the debt from highest interest rate to lowest would be more profitable in the long run, the psychological reinforcement that can come from being able to watch a stack of debt get lower and lower will help make sure that a person with even the smallest amount of discipline can have a better chance at becoming debt free than a person paying off their debts by interest rate.
Debt consolidation is another popular method of debt elimination. Consolidation allows a person to gather up all of their debt into one balance and pay off that debt with one simple monthly payment. This is a great solution for folks that have trouble keeping track of their bills and spending. By only having to worry about one debt account each month a person will be able to budget themselves better and take care of their debt quicker. This is another method that relies heavily on the power of psychology. In reality, there is nothing different between paying $100 across 5 accounts a month or $100 to a single account each month, but there is something different in the way the mind perceives the number of accounts, and having to send out one check instead of five is something that most folks in debt recovery can appreciate. Making a program easy to follow is the first step to designing a program that people want to follow.
While several methods of debt elimination exist, the two methods outlined above are perhaps the easiest for the debtor to undertake with the least amount of help and in the fastest way possible.
by: Timothy McFarlin
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