Sunday, February 7, 2010

3 Step Debt Free Programs

3 Step Debt Free Programs

If you are in debt and looking for solutions, you are not alone. According to the finance section of Yahoo!, in 2010, the average household credit card debt had reached more than $9,000. The good news is there are as many plans to get you out of debt as there are reasons you got yourself into debt in the first place. There are also many three-step plans to reduce or remove debt with variations to a simple formula that will allow you to develop a plan to eliminate your debt on your own.

Make a List

    The first step in virtually any debt-relief program begins with listing your debt. From Credit-Factor.com to the finance section in Yahoo!, debt plans begin with accessing your current state of debt. Not only does a list provide a much-need wake-up call, showing you exactly what balances you owe to which creditors, but it also allows you to see how much interest you are paying on your debt. When you compile your debt inventory, make sure to include minimum payments on high-interest credit cards or department store credit cards, and list all the interest rates so you know which balances carry the highest interest rates.

Change Your Habits

    Now that you know your debt, resolve to put an end to the habits that gotten you into trouble. Education-Portal.com recommends you to quit your reliance on plastic. Credit card debt, with interest rates in many cards exceeding 20 percent, is the most toxic of all, and the hardest habit to break. Closing out cards, even with zero balances, can damage your credit score so place all your high-interest cards in a drawer, the freezer, a lock box, and only use the card with the lowest balance and the lowest interest rate -- and use only in case of emergency. Pay with cash, rather than a bank card, and stick to a monthly budget that allows you to pay down debt, cover expenses, and allows for a few luxuries or a large purchase or two.

Negotiate Lower Rates

    One of the biggest contributors to your debt is the interest rate you pay on credit cards and department store cards. Shaving off percentages on your debt could save you hundreds of dollars a year, money you can use to pay down the equity on your credit card balance. If you contact a credit card company and ask for a better rate, you'll need leverage such as a history of on-time payments and good credit. If you are struggling with paying your bills, let your creditors know that you'll have an easier time paying bills with a lower interest rate. When all else fails, transfer balances to your lower-interest rate cards or look for promotional rates for new cards and only transfer what you think you can pay in the amount of time you are entitled to the low rate.

Tackle Your Balances

    Now that you have identified your debt, changed your spending ways and negotiated or transferred balances to more favorable interest rates, it is time to tackle your debt. Some experts believe you should tackle the highest balances with the highest interest rates first. However, noted debt expert Dave Ramsay believes in the "snowball" effect, paying off small balances first and then applying the payments you were making to the next lowest balance. In this manner, you are paying off balances, and succeeding in eliminating bills, slowly moving the mountain of debt. Whatever the method, you need to find a plan and be consistent in tackling those balances.

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