Debt Elimination

Planning For Debt Elimination Without Surplus Cash

Previously we looked at using surplus cash each month to chip away at those outstanding loans, on our long road to debt elimination. But what can you do if there is no surplus cash every mo0nth?

So, you have examined your monthly outgoings, and there is nothing to cut out in the way of expenditure. Or you can make some savings, but it just brings your outgoings and income into balance each month, whereas before your outgoings were in excess of the income.

Well, at least you have made some progress by bringing income and expenditure into equilibrium. But where does that leave you in your debt elimination challenge? It is probably time to focus on those debts, and see what can be done to bring down the cost of those loans, and the monthly repayments. It may still be possible to plan for debt elimination in 5 years, especially with your newly developed anti debt mindset.

Taking out another loan will not, of course, bring instant debt elimination. However, it may be that a debt consolidation loan will give you a chance to structure your plan over a 3, 5 or 7 year period. With the right approach, this may be an excellent opportunity to improve your finances no end, resulting in debt elimination at the end of the loan period.

The key will be in whether you are able to reduce your total loan repayments, and whether you are then able to set aside those savings each month. Let us look at a simple example, of a consumer who has two credit cards and two other loans. He owes a total of $11300, and has a minimum monthly payment of $346. Let's say he is able to obtain a new consolidation loan at 10% annual interest, and would have repayments of $240 per month over 5 years, a saving of $106 per month, or $6360 over the 5 year period.

That is a significant amount to put away each month. Enough for a replacement second hand car? No need for any more loans? In which case, debt elimination, by our definition excluding the mortgage, could be achieved within that 5 year period.

There are, of course, millions of permutations of figures, so you will have to consider your own. But the principles are always the same. Living within your budget, planning ahead, and saving for any future purchases in cash. That's a simple formula.

All it needs to accomplish debt elimination is your new mindset; the mindset that does not want debt, borrowings, loans to be a part of your future life. The mindset that has patience in clearing the debt, and is able resist new purchases of optional items until the cash is available.

It is worth always remembering, if you cannot to afford to pay cash for something, then you cannot really afford it at all. The only exception is the house, where the investment potential and rent saving alter the financial viewpoint.

Once you have the cash-save mindset, you have all you need to clear unwieldy and expensive debt from your life, once and for all.

Debt Stacking - Fast Track Out of Debt

You go to the mail box and scan - a couple fliers (nah), your magazine subscription (yes!) and bills (groan). Every month the bills show up and as you sigh and take out your check book you wonder if you will ever be free.

Each month you pay the minimums and although you KNOW you've got a handle on it - you are not charging your credit card or accumulating new debts anymore - it seems that you will be paying the minimum fees forever.

Did you know that HOW you pay your debts can affect how soon you will finishing paying them off - even if you keep paying the same amount for debt every month? Of course you might be able to get a consolidation loan, but if you're not eligible or are not interested then there are several other things you can do.

It's not always the easiest to figure out the mathematics, but there are three steps to quicker debt relief - guaranteed.

STEP ONE - Create a list.

List your smallest debts first followed by your largest high-interest debts (credit card) and then your largest low-interest debts (Lines of credit and taxes).
Plan to pay the minimums on all debts with these goals in mind:

STEP TWO - Small bills first.

They may not be the highest interest, but every bill that you are paying some interest on means you are usually only paying minimal amounts on the principal. Multiple debts are also a sure way to bring your spirits down. Paying off small debts first is a quick way to start checking them off - and freeing your mind.

STEP THREE - Move the payments along.

When one debt is paid add the funds to the next debt. For example, say you're making $75 payments to a small debt. When the debt is cleared add the $75 to the next debt on your list. If the next debt had a minimum payment of $100, you will now pay $175 until it is paid off. When that one is finished, take the $175 and add it to the next payment and so on.

STEP FOUR - Save the cash!

Don't forget that when your debts are cleared you have set yourself up for a better financial future. The best way to take advantage of your new situation is to use all the money you were spending on debts and start investing or saving it every month.

With this strategy your debts will clear faster meaning you will pay less interest, you will see progress as you clear small debts first, and you will not be tempted to use the funds for personal use instead of debt repayment.

It is a worthwhile goal to get out of debt. Seeing that goal come sooner and teaching yourself discipline sets you up for a brighter financial future. You OWE yourself that!
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