Debt is probably the largest threat to your financial stability. For this reason, you have to approach your debt aggressively and make a concrete plan to reduce -- or ideally, eliminate -- it. Attacking your debt sometimes is overwhelming, but you can make it less so if you break your approach into distinct, smaller steps.
Assess the Debt Picture
Know exactly how much debt you have. Look at your bills and any statements from lenders and creditors and write down what you owe on each account. Then add up all the amounts to get the total, current amount of your debt. Next, go back and look at your interest rates for each account, as well as the minimum payment you're permitted each month. If you have joint accounts or are married, talk to your partner and make sure you've counted every debt for which you legally could be liable.
Track Expenses
Tracking expenses shows you where your money is going and whether you need to cut spending in certain areas. Write down everything you spend, even something as small as a gas station coffee. If you can't write down the amount you spent right away, keep the receipt for later.
Create a Budget
Once you have an idea of what you are spending compared to your income, design a budget. If possible, treat the debts you have as inflexible expenditures you must pay, the same as your rent or the cost of food. Stick to the budget once you have it -- people often stay in debt trouble because they don't enforce the budgets they make, not because there's anything wrong with the way they've budgeted.
Review Your Options
You can reduce what you owe through negotiation, resolution, settlement or bankruptcy. If you have trouble staying organized, paying a debt management company to pay creditors and lenders on your behalf may help. You also can refinance, consolidate, apply for new loans, tap the equity in your home or ask friends for help.
Get Counseling
A debt counselor will look at your debt situation and advise you on which one of the financing/debt management options is best for you. He will give you tips and tools to track your money and avoid debt problems in the future. The Federal Trade Commission offers free counseling, as do nonprofit agencies.
Select Your Debt Payoff Method
Pick one of the debt payoff methods available. Begin working with your creditors and lenders according to the method you choose.
Pay on Time and Snowball
Once you've made arrangements to pay your debts, make payments on time and in full every month. Snowball the debts to pay them off. This means you attack the debt with the highest rate of interest first, throwing any extra cash you may have at that debt. You pay at least the minimum on all other debts and move on to the debt with the next highest rate of interest until all debts are eliminated.
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