We have only a few short weeks before we usher in 2009 and what
better time than the present to focus on a New Year’s Resolution.
Typically most people vow to lose weight or quit smoking. Perhaps
they promise themselves they will work less and enjoy life more.
There is an infinite number of resolutions that are made at the
start of a new year, but very few are actually carried out. The
main reason most people fail at staying true to their self made
promises is due simply to lack of planning. Just as anything else
in life, if you identify a goal to work toward with no definitive
steps to attain that goal, you are less likely to succeed. If 2009
is the year you resolve to get out of debt for good, take the
following steps to develop a “get out of debt plan” to increase your
chances of reaching your goal.Step one- calculate your debt.
The best place to start this step is by obtaining a copy of your current credit report. This will give you a list of your financial obligations to all institutions that report to the three major credit bureaus. You can back this up with recent statements or any invoices that may not be included on your credit report. Next, write down the name of each creditor, amount owed, monthly payment, and interest rate for your accounts.
Step two- prioritize your accounts.
Once you have a completed list of your accounts, you will need to determine in which order you want to pay them. As a general rule, it is recommended that you apply more money to accounts with higher interest rates, however in many cases the higher interest rate may coincide with a higher balance. If this is the case and you feel that you might get discouraged by not seeing accounts repaid quickly, you may want to pay off lower interest/lower balance cards first. The goal is to be debt free, so determine which method will likely work best for you and keep you motivated toward the end result
Step three- determine disposable income.
Calculate your income for the month; subtract all of your expenses including mortgage, utilities, food, debt repayment and any other costs of living. The amount of money remaining is what you will be able to apply toward your debt.
Step four- develop your plan.
Once you have determined how much additional money (disposable income) you can apply toward debt repayment, you should begin by adding that amount to your minimum payment for either the highest interest or lowest balance account, depending on which method you decided on. As you apply the new higher payment to the account you selected maintain minimum payments on all other accounts until it is paid off. Once your first account is repaid, apply that same payment amount plus the minimum payment of your next account (again, either second highest interest or next smallest balance) and repeat the process. Continue until all debts are paid off.