How To Handle Debt

Facing facts about your debt will help you handle the problem. Find out how much your monthly principle and interest payments are and how much debt you owe total.

Amazingly, some people have so much debt they have no idea how much they are actually paying in interest. Some have no desire to know. And when you consider the figures that is understandable.

But the first step back to financial health is a good diagnosis. If you're paying $200 per month in interest charges alone on a monthly net income, say, of $4,000, then you are paying 5% PER MONTH of your income for essentially nothing. It's not entirely nothing, since you are enjoying the things you bought early. You would have had to save to purchase them outright. But is that worth 5% of your income?

When you get to the point where the interest payments are all you can make you have hit a wall and will never pay your debt off. You are paying nothing toward principle, so you are spinning your wheels. Maybe you are not to that point, but consider where you are? How much are you paying toward interest and how much to the actual repayment of your debt?

Suppose it's 90% interest, 10% principle. That's approximately the case for the average home loan for the first several years. You can use an online calculator to see how long that will take in your situation.

Suppose, for example, you owe $10,000 at 7%. You could pay only $116 per month, but it would take you 10 years to pay it off. The interest would cost you $3,933 - almost 40% of the total amount.

Now that you've seen your situation, you need to take two further steps. Develop a budget that will allow you to make payments as large as you can handle to get the bills paid off. You could use the 'snowball method' and pay off the smallest one first. Then apply what you were paying to the smallest to the next smallest (now the smallest), until you've reached the end.

You could work the "snowball method"" in reverse, paying the highest debt first, and save a lot of money in interest. But that is hard to do because it takes a long time to see any results from your hard work.

About the Author

Does your debt have you stressed out and constantly worrying? Quit beating yourself up and learn some simple but effective debt reduction tips. Visit http://www.debtsmackdown.com for plenty of helpful information.

Article Source: Unique Financial Articles

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