by: Charles Hamel
Are you up to your eyeballs in debt? It's not a prime position that you want to be in, and it has to be one of the first areas that you must work on in improving your personal life. Is your credit score horrible? Well read on and I will try and set you on the right path in improving this situation.
Credit Score Issues
Rewind back 15 years, and my financial situation was bleak to say the least, I had a credit score that was barely middle 300's which is worse than no credit rating. I was 3 years delinquent on a student loan, and some credit card companies decided to give me some credit cards (suckers) and of course I was months delinquent on those also.
I would get calls all of the time asking me when I was going to pay, and my answer was, well I didn't answer, the phone that is. Could I have paid some? Yes, I just wasn't interested in paying, besides if I payed them, then I couldn't go partying, and that was way more important wasn't it? Selfish, irresponsible? You bet! But I never had anyone teach me about finances. In my opinion most parent's are really dropping the ball when it comes to this subject, along with a lot of other life lessons, but thats a totally different subject. Our schools are not teaching basic finances, kids don't learn how to balance a checkbook, or about interest rates on credit cards, this is a vital life lesson that is not being taught and people are learning the hard way about this subject. Remember from my other articles that there is a easy path in life and there is a uphill path, and sadly to say the majority of society takes that uphill path.
Debt Reduction Steps to take
The first thing we need to do is collect some data, take out a piece of paper, and write down everything that you have to pay on a monthly basis, (ie. Credit cards, utilities, rent, mortgage, car note, doctors) whatever it may be, then I want you to write down the interest rate that you are paying beside each item. (utilities and doctors usually will not have this). Put them in order from highest interest rate down to lowest, and this is the order that we will pay them off. Next I want you to write down in a journal every single cent that you spend over the period of one month, I know this is a pain but trust me it will be very helpful in locating money that is leaking from your budget, people will be surprised how much sodas add up to in a months time.
Developing our Debt Reduction Game Plan
Ok now that we have the our data we need to develop a plan, we will start concentrating on the highest interest item first, you will still need to make all of your monthly Minimum payments as scheduled, if you were paying more than the minimum on some then stop doing that. Now we need to identify how much extra income we have available, take all of your bills on a monthly basis, adding up the minimum monthly payments, then take your monthly salary and subtract your monthly minimum payments from your monthly salary and this will give you your extra income. Now I know that emergencies happen and that sometimes you need a little put back just in case, and I fully understand this, but having said that if you are truly committed to getting yourself out of this situation, you will do what it takes to make it happen. Next in addition to the minimum monthly payment on your bill that has the highest interest rate, take the extra income that you have allocated or what you feel that you can use to getting out of debt and apply it in addition to the monthly minimum to the bill with the highest interest rate. Now I don't recommend putting it all on one check and sending it in, because sometimes certain creditors will take out the interest first out of the extra monies, so handle the situation like this: make a check out for the minimum, then write a separate check for the extra you are going to pay and in the notes of the check write, apply to the principal only. What this does is it pays down on the actual amount that you have borrowed and will not go towards the interest the company is charging, which will in turn cut down on the over all amount of interest that you will pay in the long run.
Paying off the next Debt
After you get that highest interest bill totally paid off then you will concentrate on the next bill on your list. Take the minimum that you were paying on the first bill you paid off plus the extra and this will be your new extra income total that you will apply on a separate check along with the minimum on the next bill that we will be concentrating on. Continue this strategy until you owe no one, now you will always have your utilities, they will never go away, but you will no longer be paying people for the privilege of them lending you money.
Example: Visa Bill Balance $200.00 monthly minimum $10.00 21% interest
Mastercard Balance $400.00 monthly minimum $15.00 18% interest
Auto Balance $5000 monthly minimum $300.00 9% interest
Extra income = 50.00
So our first month we will pay all of out monthly payments like usual but in addition to the $10.00 minimum on the Visa Bill since it is the highest interest bill we will write a separate check for the $50.00 extra income and send it in also applying it to the interest. And in a little over 3 months the Visa bill will be gone forever. Now we take our $10.00 that we were using to pay the monthly minimum on our Visa bill and add it to our extra income which will be $60.00 and make the monthly minimum of $15.00 on our Mastercard and on a separate check for $60.00 apply it to the principle on our Mastercard. In about 6 months our Mastercard bill will be gone then we will have an extra income amount of $75.00 to start knocking off that Auto bill.
Trying to make you sick about debt
I just wanted to give you a little truth to the way our creditors have us by the short hairs, I hope it will make you sick and motivate you to do something about your situation. It pains me to see people struggling financially, and the credit companies preying on you like some sharks to a wounded fish, and totally taking advantage of the situation. You need to move back in control of your finances, and stop letting the creditors dictate how you will live.
If you have a balance on a credit card of $5,000 at say 18% interest with the payment being $100.00 a month it will take you 46 years to pay off and you will pay back in addition to the 5,000 you borrowed a whopping $13,926 dollars for a total of $18,926 dollars, just to borrow 5,000 dollars. Right now the national average balance for consumers who have debt is $9,300 dollars and the average interest rate is 13%, with a monthly minimum being $200.00. This loan will take you 33 years to pay off and you will pay an extra $11,450 dollars for a total of $20,750 dollars WOW.
Take Control of Your Debt
So what are you waiting for? I hear it all the time, I can't afford to pay extra, well I am here to say you cannot NOT afford to pay extra, it's your money, find the way, you can do it, have faith and use your positive thinking skills on how you can get out of this situation.
I wish you much success!!
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About The Author
Charles Hamel is a baby boomer, hippy, born in the 60's, who spent 10 years of his life in the United States Navy as a Field Combat Hospital Corpsman and served during Operation Desert Storm/Desert Shield. He is a World Traveler, having spent time in Korea, Philippines, Hawaii, Guam and Japan. I am a Husband, a Father, a Chef, a Vegetarian and a Environmentalist. A spiritual being on a journey of self discovery and awakening. I am a writer, a computer nerd, a musician, a meditation practicing, music aficionado. I am a Blogger, entrepreneur, non-follower, always marching to the beat of my own drum, intuitive, easy going, technology geek.
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