Debt Payment Do's & Don'ts

Debt is a major problem for most people in the United Sates. Revolving debt reached $876 billion in the US in 2006. Not only does this cause serious financial problems, but it is the number one cause for divorce as of 2004. The leading problem is revolving and credit card debt. To put this into a perspective that everyone can understand, if you have a credit card balance of $8000 and your interest rate is 18%, you will accumulate an estimated $1440 in interest annually. That's a total of $9440 a year, assuming that you pay off your credit card in a year, if not you are looking at a seriously long term debt. How do you get out of debt with unfavorable odds? It's simple to get out of debt, but it's not easy. Here are some do's and don'ts that may help you find your way out of the red.

The DO'S

1. MAKE A BUDGET: That's right I used the terrible "B" word! Nobody likes a budget, but budgets are the biggest key to financial freedom. First, find out what you are spending money in a month. If you use a computer for bookkeeping, this is easy as long as it's updated. If not, pull out your checkbook register and credit card statements and figure it out. Lump expenses in it categories, like auto, groceries, entertainment, saving, etc. Then figure out your income for the month, add it all together and then subtract your expenses. If you come up negative you have a problem! You have to look at this example month, is this an average month? Can you count on this type of income and expense to occur every month? You will have to adjust depending on the month. Make your budget something that you can live with, otherwise you won't be able to stick to it, and sticking to it is key.

2. ANALYZE YOUR DEBT: Is your debt good debt or bad? Good debt is mortgage payment and college loans, debt that has a value. Bad debt is credit card debt and revolving lines of credit. Figure out what your highest interest rate is, what has the highest balance, and what's your highest payment. Look at what needs to paid off first, the highest interest rates on the highest balances are going to cost you the most in the long run.