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Five Key Debt Reduction Steps

Posted on May 26, 2013 at 3:45 PM

Step 1. The purpose of this first step is to bring you back to reality. You must know exactly how much money you owe and to whom you owe it.

* Collect all of you unpaid bills and any other evidence of your outstanding debts.

* List each outstanding bill on the same sheet of paper. In separate columns, include the invoice or account number, amount due, name of the creditor, and the date the bill can be paid in full without incurring additional finance charges.

* Total the amount due column.

* Total the number of creditors.

* Total the number of bills. Are you surprised or shocked? Of course, most will be shocked by the scope of their debt. Regardless of your reaction, you now (perhaps for the first time) have an exact accounting of your current debts. Debt help Considers this to be your guide, because it shows exactly how much money you currently owe, and by what date you must pay.

Step 2. This step employs a powerful visualization technique that actually enables you to visualize an end to your current debts.

* Mentally consolidate your bills. Do not think of your debt as a series of separate bills. Consider all your bills as one large bill to be repaid. As you diligently repay each component bill, your large bill becomes smaller.

* Mentally consolidate your payments. Do not consider your individual payments towards separate bills, consider them one large payment towards your one large bill.

* Debt help shows why you must continue making the same size payments regardless of how many bills are repaid. As bills are paid in full, more money is available to pay other bills, but only if your payments remain the same.

* You must pay your bills in the order of their highest monthly payments. This allows you to apply the most amount of money to the next bill and reduces your debts in the shortest amount of time. If your large bill becomes smaller each time you make a payment while the size of your payments remains the same, the net result of this strategy is that each successive payment has a greater impact upon the size of your debt. Debt Example:

Say you have two bills, one for $250 and one for $750. Together they total $1000. You can afford to pay $500 per month. If you pay $250 towards each bill, the small bill will disappear after the first payment and the larger bill is reduced to $500. You still have $500 available for the next payment. If you maintain the same size payment, you will completely eliminate the remaining bill with the next payment.

Step 3. Now it is time for a course correction - you must alter your spending habits. Regardless of the cause, be it problem debt or chronic debt, you must be willing to change your spending habits and if necessary, seriously alter your lifestyle.

* Establish your long-term financial goals. It took months or years to reach your current level of debt. Since you cannot wish yourself out of debt nor can you count on winning the lottery, you must adopt, reasonable financial goals. The more you practice meeting even limited financial goals. The more confident and in control of your life you will feel. This in turn enables you to meet longer-term goals successfully.

* Establish credible short-term goals. Short-term means tomorrow! During the next 24 hours you are not to incur any new debt.

* just get through one day, then another. You get the idea. The impact of this - trail by fire - is to immediately boost your confidence by preventing your debt from expanding. This prepares you for the serious commitment to complete debt reduction ahead of you.

* Establish realistic intermediate term goals. These goals should find you becoming comfortable with the basics of debt reduction. Your goals are to implement the plan, grow more confident as you watch your debts grow smaller and begin to realize that you can become debt free.

* Establish, well defined, long term goals. As you master these debt reduction techniques, you will be firmly committed to effecting, permanent chance in your financial condition. Not only can you see yourself debt free sooner, but also you can realistically see yourself accumulating wealth. You are in control of your financial well being. You are no longer a debtor - with debt help you are on the road to complete debt freedom!

* Prioritize your spending. Eliminate impulse purchases. Buying on impulse addresses your wants not your needs. Seek alternative methods to pay for goods and services:

* Barter: You may be able to barter anything of value including your time, for something of value to you.

* Learn to live with less. you must learn to live with the extremely limited financial resources you have available, instead of the unlimited ones you pretended you had. Remember, a sacrifice is a trade-off. You give up something now; you are rewarded later. Denial, on the other hand, has no reward. it is punishment.

Step 4. Remove access to any credit you may still have. During this entire debt reduction program you must learn to steer clear of bad habits. You should no more try to conquer debt while you have access to credit, than you would pilot a rowboat thru a hurricane.

* Lockup, return, revoke, cancel, destroy or otherwise make unavailable to you all the remaining sources of credit: credit cards, revolving lines of credit and credit extensions.

* If you feel you need to keep a credit card for identification purposes such as when you pay by check, then choose the card with the least available credit remaining on it.

* Become your own banker. Do not carry your checkbook on your person. Write yourself one check every week. This is your allowance. Cash the check and live on it.

* Every time you receive an offer of credit in the mail, immediately tear it up and throw it away. Do this even if you have to make a special trip to the incinerator or the dumpster in the middle of a blizzard! Consumer credit is the most insidious type and the most Difficult to give up. As you know, you will be continually bombarded with new offers of easy, often pre-approved credit. You must ignore them at all cost. By this almost surgical removal of your access to credit you will come to realize the power of the word NO! And you will become more comfortable saying it. Step

5. Use Cash Only! * Pay cash for everything. If you do not have enough cash to pay for an item, you cannot afford it. Anticipate your expenses now, so that you will have enough cash on hand.

* Now if you do not have enough cash on hand, then cash a check at your bank or make a withdraw from your savings account. Either way, you will need to immediately deduct the amount from the remaining balance.

* If your account is overdrawn at the bank, please stop writing checks immediately. If you do not know how to balance your checkbook, do not write any checks until you learn how to do it. You must be absolutely sure there is enough money in the account to cover every check issued. Under no condition may you bounce a check. Aside from any criminal liability and negative credit reporting you may be subjected to, you will have to pay an overdraft charge. This may be as much as $50 and will be deducted automatically from the balance in your account. You also may be liable for a merchants return check fee. Which can be as high as $25 to $50 per check.

* Do not apply for overdraft protection at your bank. Because this is a line of credit with a high interest rate, you will be tempted to abuse it. Living on cash teaches you to prioritize your spending. Since you can no longer buy anything you want whenever you want it, you must focus on what you really need. Ask Yourself: Since I am paying cash, is this something I absolutely must have? Am I really willing to forgo something else in order to pay for this item now? Learn not to feel denied. Instead, think of the sacrifices you are making to achieve your long-term debt reduction goals. In order to eliminate your debts, you must satisfy your needs not your wants. There will be time to buy what you want after you are in control of your finances.

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