Loan intermediaries

Working out the right financial debt reduction plan to help you get out of debt can be tricky. Everyone seems to have all kinds of advice and theyre all convinced their method is best. How can you know which one is the right one to help you?

The problem with most financial debt reduction plans is that they dont take into account your own unique financial situation. Only you have your level of income and expenses combined with your current debt balances. Your circumstances arent the same as anyone elses, so why would you assume that a method that helped someone else with their financial difficulties will help you too? Work on a method that suits your own goals and your personal financial situation.

Before You Begin

Before you begin working on a debt reduction plan, ask yourself why you want to reduce your debts. You need to have a clear goal and a defined purpose in order to maintain the level of motivation you need to become debt free.

Think about how much of your hard-earned income youd have left over each week if you didnt have to hand over so much of it to banks and credit card companies. What would you do with that extra money? Your answers to these questions will form the why section of your own motivation.

Spending Habits

Most financial debt reduction tips begin by saying you should work out a budget and then scrimp and save and generally live like a pauper. This is the surest way to lose motivation and end up getting nowhere when you realize youre not enjoying anything.

Instead, take a careful look at your own spending habits. Understand how you got into such a huge amount of debt in the first place. Did you buy a home that was too expensive for you? Is your car far too big and uneconomical for your needs? Are you the type of person who needs to have all the latest electronic gadgets the moment theyre released whether you can afford them or not?

There is a reason why your debts are mounting up and becoming uncontrollable. Take a careful look at your current lifestyle and how much it costs to maintain your standard of living today. In order to become debt free, you first need to fix your spending leaks. This means finding the discipline to stop charging anything else on your credit cards and only buying those things you have the cash to afford.

De-Clutter

Financial debt reduction cant begin while your finances are cluttered, messy and disorganized. Spend some time working through an accurate picture of your total income after tax, your realistic expenses and your current repayments. Then work through some ways to reduce your costs.

This should include working on ways to reduce any repayments or interest charges on outstanding debts, avoiding penalty fees and finding ways to cut back the amount you spend on other living expenses.

Once youve found the right level of motivation to become debt free and youve de-cluttered your financial mess, youll find that working on a realistic plan for financial debt reduction will be much easier.

Your home mortgage is often the largest debt most people have. In order to buy a home, taking out a mortgage is necessary, but have you thought about a mortgage debt reduction plan to pay it off quickly?

Mortgage debt reduction needs to be a long term goal, but it doesnt need to be difficult. In fact, there are several simple ways to reduce your mortgage quickly and cut down the loan term dramatically. You have the option of using one or a combination of any of the tips mentioned below as part of your mortgage debt reduction strategy.

Payment Frequency

When a bank calculates your mortgage repayments, they use a calculation known as amortization. This allows them to work out how much you need to pay each month so that a portion of your payment goes towards paying down your balance and the other portion of your payment is interest charged on your balance owing. They tell you how much you need to pay in monthly instalments to pay off your loan over the exact loan term written on your mortgage contract.

However, if youre paid bi-weekly or even weekly, you are able to adjust your repayments to the same frequency for which you get paid. This not only makes budgeting much easier to pay a smaller portion each pay period, but it can also cut years off your loan term and save you thousands in interest.

Call your lender and ask them if you can adjust your payment frequency to bi-weekly, but be absolutely certain you work out your own calculation amounts before you call.

Bi-Weekly Calculations

Find out exactly how much your minimum monthly payment will be and then divide it by two if youre paid bi-weekly. If youre paid weekly, then divide your monthly payment by four. Dont use any fancy calculations or try to figure out how many weeks in a year and then divide by how many fortnights. This wont work. Simply divide your minimum monthly repayment by two for bi-weekly or divide by four if youre paid weekly. Write this figure down. Its your new minimum repayment. Youll pay this new amount every time youre paid.

More than Minimum

Once you have your new bi-weekly minimum repayment worked out, round this figure up to the nearest $5. For example, if your payment comes to $423.24, then round this up to $425. This small amount wont break your budget and youll find it easier to remember how much you need to pay.

Rounding up your repayments seems like such a small amount of money, yet it can save you tens of thousands of dollars in interest and reduce your loan term dramatically.

Lump Sum Reductions

Lenders calculate your interest repayments based on the balance you owe at the end of every day. Then they add up how much interest has accumulated and show you one simple figure at the end of the month. By making more regular payments, such as weekly or bi-weekly payments, and then rounding up those amounts, youre reducing the amount you owe on a more regular basis. This reduces the amount of interest the bank can charge you.

If you receive a pay raise or a tax refund or a bonus or if you earn some extra cash from a yard sale, pay it as a lump sum payment off your mortgage. This reduces your outstanding balance and lowers the amount of interest youll be charged. Mortgage debt reduction really is as simple as finding a plan and sticking to it.

Credit card debt elimination is the dream of many Americans, getting rid of the debt that has plagued them for so long can bring an incredible feeling of freedom. In today’s society it’s very easy to get in over your head since it’s virtually impossible to pay cash for everything you need. That’s where credit cards come in. But if something happens, you might not be able to pay off the bill when it comes in and it can quickly spiral out of control.

Anything can contribute to this, as accidents do happen. You might simply forget about the payment, or you may have been injured and had to pay medical bills, or maybe even something as simple as not getting the payment in on time. None of these are reasons for you to be condemned to a life of debt.

There are a lot of options for getting out of debt: debt consolidation, debt counseling, even bankruptcy. However before you do anything as drastic and permanent as bankruptcy take a step back and think about it. You should try to solve this issue on your own first, as bankruptcy must be an absolute last resort.

As the saying goes, “if you want something done right, do it yourself”. This can also be applied to getting out of debt.

Here are three easy steps you should follow to help get out of debt. It’s not going to be quick, and it will take patience and discipline, but it is a proven system that will help you be debt free.

1) First you should make a detailed list of all your debt. Have everything included, even the smallest debts. The list should show all your monthly costs as well. From utility and house payments, to insurance payments. Anything that’s taking money from the household should be added. All of that should be in one column, while all of your credit card debt is in the other. That way your expenses and debt are side by side.

2) Give yourself a very strict monthly budget. Make sure you are able to pay the minimum payments on all of your debt.

3) Use that list and choose the smallest debt first. Pay as much as you can spare towards that single debt. Soon it will be paid off and you can take the money from that debt and apply it to your next smallest debt. Keep doing this over and over, working up the list. If you keep doing it you’ll eventually find yourself getting out of debt.

Credit card debt elimination is a hard thing to do, but it can be done. Just make sure to always have hope, and keep going. As long as you stick to the system above you will find yourself free of debt.

This method is proven to work for many people, it just takes a lot of patience and discipline. You will probably have to make some sacrifices as well such as cutting back on your daily lattes and eating out as often. But that will be a small price to pay to finally get out of debt.