The 3-step plan to paying off debt (Or what to do to be debt-free)

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The 3-step plan to paying off debt (Or what to do to be debt-free)
3 years ago
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Financial security is one of the most important long-term goals for most people in the world. Unfortunately for some individuals, there is one big hurdle that stops them from achieving this goal, and that is their debt. It is especially difficult if your debt has grown so huge that simply thinking about it overwhelms you. In the most extreme cases, a person would have no other choice but to file for bankruptcy. However, this is definitely not the best move if you want to maintain good credit standing. Instead, you need to have a well thought out plan of how to pay off all your debt and then follow your plan accordingly.

Step 1: Face Your Debt
A lot of people choose to ignore their debts, perhaps hoping that their financial woes would magically disappear one day but of course, this will not happen. If your goal is to eliminate your debt, the first thing you need to do is to know exactly how much you owe and get into the mindset of paying back every single cent.

Contact any of the major credit reporting bureaus (Experian, TransUnion and Equifax) and ask for a copy of your free credit report. Your credit report contains all the details about your current debt -- the name of your creditor, the amount you owe, the current interest rates and other pertinent information.

You should also gather all your bills and financial statements. Create a list of all your finances, either in a notebook or in an Excel file, and make sure that all the data are accurate and updated.

Step 2: Sort Out Your Debt
The accounts where you owe the most should sit at the top of your list. Although you should work towards paying off all your debt, these high interest accounts with the biggest balances should get the highest priority. Every month, you need to be able to make a considerable payment to these big accounts while also paying off at least the minimum on the smaller or lower interest accounts. This way, you can gradually work your way from paying off the biggest debt down to the smaller ones.

Step 3: Negotiate with Your Creditors
Some people are not aware that it is actually possible to get a lower interest rate just by communicating with the credit company. You might be surprised at how willing some of these credit companies can be to settle with you. After all, it is always better for them to get paid at a lower interest rate than not to get paid at all. Let your creditors know that even though you are going through financial difficulties, you want to be able to make your monthly payments with them. The earlier you communicate with your creditors, the better. Of course, once your creditors agree to lower your interest rates or your monthly payments, you should not use your cards and add on any more debt.

By following these three simple steps, it will be a lot easier and faster to reach your goal of getting rid of all your debt. In addition, you can also talk with a financial advisor or even a friend who is knowledgeable in this area. Once you are able to formulate a plan to eliminate your debt, the rest will just depend on how much you can discipline yourself in sticking to the plan. There will probably be times when you feel frustrated and tempted to go back to your old ways. During these instances, just think of the benefits that come with having zero debt on your record. Not only will you be able to get better credit card rates, but you will also be able to provide a better life for you and your family in the future.

by Sarah
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