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Becoming
Debt Free
Five Steps to Become Financially Healthy.
This year,
choose a smart resolution that will positively impact your pocketbook and
your peace of mind. Make a pledge to reduce your debt and boost your
credit score. Lowering the amount of debt you carry can significantly
improve your credit profile, reduce the loan rates you could receive and
save you a lot in interest payments. It just takes a few easy steps and a
little dedication to take charge of your debt.
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Get
the Facts - Collect all your account, loan and credit
information and go over the records with a fine tooth comb. Write down
the monthly payment, debt amount, interest rate and term of each debt
on a sheet of paper. Next, write down your total monthly income and
list your estimated monthly expenses. Order your Credit
Report and Credit
Score online to get a baseline for tracking your improvements.
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Do
the Math - Calculate how much you usually spend paying each
debt and how much interest that debt collects per month. Define which
debts need to be paid off first. Credit card debt and small loans
should probably be paid before low-rate student loans and home loans.
A "yes" answer to any of the questions below is a red flag
for accounts that need immediate attention:
Which
debts have the highest interest rates?
Are there accounts above 50% of their credit limit?
Do you have any debts that are close to being paid off?
Which debts have the highest annual fees?
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Negotiate
and Consolidate - Start working on those high-interest
credit card debts first. Call your creditors and negotiate lower
interest rates or move your balances to less expensive credit cards.
Accounts that are above 50% of the available line of credit can harm
your credit score; pay off or move some of the balance to a different
card. If you have a credit card debt that is too large to handle,
consider taking out a personal loan from your bank for the amount.
Your bank can probably give you a much lower rate and a more lenient
payment schedule.
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Refinance -
After taking control of your credit card and small debts, take a look
at your major loans. Would it make sense to refinance your mortgage?
Could you consolidate some of your other debts into the loan? What
about cashing out some home equity to pay off a high-interest debt?
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Stick
to the Plan - Now that you have lowered your rates and
refinanced your loans, create a payment schedule and a monthly budget.
See exactly how much you can afford to pay each month by subtracting
your expenses from your monthly income. Divide the remaining amount
between the accounts, paying the most to the debts with the shortest
terms and highest interest rates. Create a payment calendar with the
due dates and the payment amounts you just calculated for each bill.
Sign up for automatic bill payment through your bank or register for
online payments to keep you on schedule. To continue to keep your
credit on track, register for
Credit Monitoring online and you'll receive quarterly credit reports,
credit alert emails and trending charts that outline how much your
credit improves over time. Set goals for yourself and don't forget to
celebrate when you reach debt-removal milestones!
Sign up today for an absolutely N0 C0ST credit repair analysis.
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