Debt Plan & Solutions
Your debt relief plan must be implemented in steps. You must complete each step in order for your debt plan to work. The first thing you have to do is figure out the current state of your finances so you can figure out the best way to deal with your debt. This means finding out how much debt you really have. To do this you need to:
- Compare your spending every month to your monthly income. Are you spending more than you earn?
- Next you need to order copies of your credit reports from the three credit reporting agencies: Equifax, Experian and TransUnion. This will tell you if their is any negative information in your credit history. Negative information usually means a lower credit score and higher interest rates on anything you finance.
- Find out what your FICO score is. Creditors make all lending decisions based on this score.
- Create a list of all your debts.
After you assess the financial situation you are in you need to prepare a plan for handling your debt, paying your debt and tracking your debt. You need a budget or spending plan. This is the most important thing you can do to get out of debt. Without a budget you do not have a road map to financial freedom.
A budget is a written plan that will:
- Make sure that your limited funds go toward paying your important debts and expenses.
- Keep you from spending more than you make.
- Allow you to pay off your debts as fast as possible.
- Build up your savings.
- Help you achieve your financial goals.
After you have established your budget you need to organize your debt so you know which debts to try and pay off first. Remember you must make payments on all your debt. By organizing your debts you can see which ones you need to pay down first because of high interest rates.
Now is when reality usually hits. You have the true picture or how much debt you owe and how much income you have. If you owe more monthly then you make there are things you can do so don't panic. Read how to reduce debt to get some ideas and tips on reducing debt.
Once you have listed all your debts and organized them, created your budget, and reviewed your credit reports it's time to start paying down your debt monthly. Pick the highest interest rate loans to pay down first. Pay the most on it and the minimum on the others until you get it paid off. Then apply that money to the second highest interest rate loan and keep following this process until all debts are paid off.
Always pay your mortgage or rent on time. This is one of the first bills to get paid. It may seem overwhelming at first but soon you will be able to see your progress and it will feel great when you pay off that first debt!