When walking through a mine field, one would be wise to follow in the exact footsteps of the person standing on the other side. The article below outlines some very simple steps to equipping yourself with the knowledge to get over the hump and take your life back from creditors.
Step-One: Take Stock
The first step is often the most difficult step - taking stock of exactly what debts you have. Grab a copy of your latest credit card bill (or go green & hop online) and a notepad. Many debt management books create complex algorithms that require an advanced accounting degree to solve. For this exercise, simply jot down the balance owed & the monthly minimum payment.
Step-Two: Organize
In this step, we're going to determine how many minimum payments it would take to pay off each credit card. We'll do this to determine the order in which to pay off your cards. Using a calculator, or your favorite spreadsheet application, divide the Balance Owed by the Minimum Monthly Payment. Jot down this result (called Payment Amounts). Repeat for every credit card/debt.
For Example:
Debt 1: Chase Credit Card
Balance Owed: $1000
Minimum Monthly Payment: $20
Payment Amounts: 1000/20 = 50 Payments
Debt 2: Capital One Credit Card
Balance Owed: $2000
Minimum Monthly Payment: $50
Payment Amounts: 2000/50 = 40 payments
Debt 3: Sallie Mae Student Loan
Balance Owed: $10,000
Minimum Monthly Payment: $100
Payment Amounts: $10,000/100 = 100 Payments
Step-Three: Determine Payoff Order
Sort the list above based on the Payment Amounts, with the smallest Payment Amount on the top. This is the order you should pay off your debts. Using the above example:
Capital One Credit Card (40 Payments)
Chase Credit Card (50 Payments)
Sallie Mae Student Loan (100 Payments)
Step-Four: Start Paying Off Those Bills!
Utilize every available dollar to pay off your first credit card first. If you can afford an extra $100/month, pay the entire amount on the Capital One card. It may seem odd to be paying off a $2000 credit card before paying off a $1000 credit card. However, we're focusing here on the card which you pay the highest percentage of with a minimum payment. This method will free up a higher percentage of income in a shorter amount of time.
Step-Five: Next Step?
Once you pay off the Capital One Credit Card, roll the full amount you were paying into your next credit card.
For Example:
If you were paying $150/month on the Capital One Card ($50 minimum payment, plus the $100 extra from Step-Four), roll that full amount into the Chase Card. You'll now be paying $175/month on Chase ($150 + the $25 minimum payment).
This will accelerate your debt paydown, because you're rolling previous minimum payments into future payments.
If you were paying $150 ($50 for the minimum payment, plus the $100 extra from Step-Four), go ahead and pay $175 on the Chase Credit Card ($150 from Capital One, $25 for the minimum payment).
Using these simple steps, you should be able to get a greater handle
on your finances, allowing you to get out of debt faster, with minimal impact on your existing lifestyle.
If you're looking to refinance your credit situation (balance transfers to 0% interest, debt consolidation, etc), a great resource I have used is a comprehensive credit card listing located at http://Refinance.NewCreditApplications.com/
The first step is often the most difficult step - taking stock of exactly what debts you have. Grab a copy of your latest credit card bill (or go green & hop online) and a notepad. Many debt management books create complex algorithms that require an advanced accounting degree to solve. For this exercise, simply jot down the balance owed & the monthly minimum payment.
In this step, we're going to determine how many minimum payments it would take to pay off each credit card. We'll do this to determine the order in which to pay off your cards. Using a calculator, or your favorite spreadsheet application, divide the Balance Owed by the Minimum Monthly Payment. Jot down this result (called Payment Amounts). Repeat for every credit card/debt.
For Example:
Debt 1: Chase Credit Card
Balance Owed: $1000
Minimum Monthly Payment: $20
Payment Amounts: 1000/20 = 50 Payments
Debt 2: Capital One Credit Card
Balance Owed: $2000
Minimum Monthly Payment: $50
Payment Amounts: 2000/50 = 40 payments
Debt 3: Sallie Mae Student Loan
Balance Owed: $10,000
Minimum Monthly Payment: $100
Payment Amounts: $10,000/100 = 100 Payments
Sort the list above based on the Payment Amounts, with the smallest Payment Amount on the top. This is the order you should pay off your debts. Using the above example:
Capital One Credit Card (40 Payments)
Chase Credit Card (50 Payments)
Sallie Mae Student Loan (100 Payments)
Utilize every available dollar to pay off your first credit card first. If you can afford an extra $100/month, pay the entire amount on the Capital One card. It may seem odd to be paying off a $2000 credit card before paying off a $1000 credit card. However, we're focusing here on the card which you pay the highest percentage of with a minimum payment. This method will free up a higher percentage of income in a shorter amount of time.
Once you pay off the Capital One Credit Card, roll the full amount you were paying into your next credit card.
For Example:
If you were paying $150/month on the Capital One Card ($50 minimum payment, plus the $100 extra from Step-Four), roll that full amount into the Chase Card. You'll now be paying $175/month on Chase ($150 + the $25 minimum payment).
This will accelerate your debt paydown, because you're rolling previous minimum payments into future payments.
If you were paying $150 ($50 for the minimum payment, plus the $100 extra from Step-Four), go ahead and pay $175 on the Chase Credit Card ($150 from Capital One, $25 for the minimum payment).
Using these simple steps, you should be able to get a greater handle
on your finances, allowing you to get out of debt faster, with minimal impact on your existing lifestyle.
If you're looking to refinance your credit situation (balance transfers to 0% interest, debt consolidation, etc), a great resource I have used is a comprehensive credit card listing located at http://Refinance.NewCreditApplications.com/
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