Thursday, June 24, 2010

Home Basics: Getting out of Debt!

It is easy to pretend all is well when money is rolling in. However, the less than stellar economy has revealed that most Americans are living well beyond their means. Highly leveraged individuals are finding it hard to make ends meet. Now is the perfect time to start paying down debt.

Now, I am not talking about paying minimum balances. We all know that approach does not work at actually getting rid of debt. My tried and true approach is the snowball method, a term coined by personal finance guru Dave Ramsey. I did not create this method however I can say it works!

Here’s what you do:

· List all of your loans/credit cards along with their respective balances and interest rates (full disclosure is key!);

· Arrange them from highest to lowest interest rate;

· Start making payments as much above the minimum as you can afford on the highest interest rate loan/card while still paying the minimum on all other debt;

· Once that loan/card is paid off, use the money that was going towards that payment and ADD it to the minimum payment you were making on the card/loan with the next highest interest rate;

· Continue until all debt is paid off;

· Stay out of debt!

Some recommend paying off the debt with the lowest balance first regardless of its interest rate just to get a sense of accomplishment. That, of course, is your personal choice. You may have to make some sacrifices, create another stream of income, and/or live well below your means (which we should all do anyway) until you are debt free. But it will be so worth it!

Here are some handy calculators to help figure out how long it will take to get out of debt:’s credit card payoff calculator

CNN's debt planner's snowball payment calculator

No comments:

Post a Comment