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The Simplest Way to Get Out of Debt

A major problem for most people today is that it is all too easy to see that you have a debt problem but it is very to see exactly how big the problem is. In fact you may be surprised to find that a very significant proportion of those individuals with debt problems have no idea how much they actually owe or how much in total they are paying out in interest charges on their accumulated loans each month. So, your initial task in sorting out your debt is to find out exactly how big your problem is.

Write down all the debts you presently have, detailing how much of your original debt is still outstanding and how much you are having to pay each month. You should also separate out your payments to show how much of the payment is a repayment of the original loan and how much is simply interest.

You might be taken aback by what you see, not only in terms of how much you actually owe, but in terms of how much of your income is simply being used to repay interest. For instance, if you are earning $4,000 a month and are paying $400 each month simply in interest charges then this means that you are paying out ten percent of your income without actually reducing the total amount that you owe. If this sounds bad enough, then take it one stage further. If $400 is the maximum that you can afford to pay out every then you can go on paying this sum for years without lowering your debt at all.

With luck the difference between the sum that you are paying in interest charges and the amount being used to repay the principle of your loans will be more realistic and it is difficult to quantify just what this should be because it will change from one loan to another. For instance, in a typical home loan it is not unreasonable to be paying 90% interest and 10% principle in the starting years of a mortgage, however you most certainly do not want to be paying this on your credit card debt.

Having calculated how large the problem is the next thing you need to do is to come up with a plan to clear your debt as quickly as you can. For this you will have to work out how much in total you can afford to pay off each month and then decide how this sum should be applied to your various debts.

One possible solution is what is occasionally called the 'snowball' approach and involves clearing your smallest debt first. You will then have more money to pay off the remaining debts and can steadily work your way up towards your largest debt.

A second solution to the problem is to take on your largest debt initially and thus save the greatest amount of money in what is in essence wasted interest payments. However, this is not an easy method and progress is slow making it difficult to stick to this plan.

Whichever course you follow you cannot simply ignore some of your debts while clearing the others or you will run into trouble with your lenders and adversely affect what might already be a damaged credit record. If coming up with at least the minimum payment required on all your loans then you will have to talk to the lenders concerned and see whether they can help. Almost all lenders will have a debt reduction settlement program and they may well agree to help you by accepting lower payments for a short period of time, or possibly even to waive your payments for two or three months, as long as you explain your situation to them.

If you are in a mess and are trying to figure out how to deal with your debt then do not make things worse than they already are by taking further debt. This might seem obvious but you would be surprised by how many people try to borrow their way back into the black. This does not work and simply makes an already bad situation much worse.

TheDebtAssistanceCenter.com provides all types of help with debt including such things as dealing with debt collection letters

Article Source: http://EzineArticles.com/?expert=Donald_Saunders

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