A debt elimination plan is a set of steps that a borrower must complete to get out of debt. The plan can be formulated by a financial adviser or by the borrower himself.
Significance
When a borrower has debt that keeps him from having extra funds at the end of the month, he needs to look at ways to pay off that debt. A debt elimination plan will do just that.
Function
A debt elimination plan gives the borrower a set of predetermined steps to pay off his debt in full. It usually starts with building up savings and then tackling the debt.
Types
There are a number of ways to pay off debt, from paying the smallest debt to the largest, to tackling the debt with the highest interest rate first.
Considerations
The type of debt elimination plan a borrower chooses should be based upon her specific needs. What works for one borrower may not work for another.
Misconceptions
Many borrowers assume that tackling debt first is more important than building savings; however, the savings will prevent the borrower from needing debt again.
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