The RIGHT way to pay off your credit debts!

Paying off your debts is probably one of the most intelligent decisions you can make in your financial life. It naturally follows that every Tom, Dick, and Harry on the planet has a way to make a buck off your hardships, and a corresponding method by which you should pay off your debts. Many of them want you to take out consolidation loans so you can get "one monthly payment" and many of them want to sell you their "fix your credit" services and many more want you to take out a home equity loan. All of this crap is bad and is exactly what I just said, CRAP!

So you ask, "Well then, how DO you do it?" I'll tell you. Once you have made a budget and once you have trimmed the fat by getting rid of bills you don't need, you should by now have an idea of the amount of money you can put toward paying off your debts. If you don't, then please go back and create a budget to get it figured out. Once you have this number in mind it is going to become very important for you to pay off your debts accordingly. You will pay this on your debts EVERY single month until you are DEBT FREE.

Sounds simple, and it is, but there is more. Most of those who are in debt to the extent that they need help getting out, also carry more than one debt. Some of these debts are more expensive than others and you can benefit by paying the more expensive debts first. For those who don't follow, the more expensive debt is the debt with the highest interest rate. So what we are going to do is add up the total monthly payment of all of our debts, and subtract it from the amount of money when can afford to put toward our debts. Whatever is left will be paid toward the debt with the highest interest rate every month. Over the course of getting out of debt this will save you the most interest in the long run, which means paying off debts not only gets you out of debt, but in a way actually puts money back in your pocket.

It is very important you continue paying the entire amount of money you have allocated toward your debts EVERY month. If you are paying minimum payments on debts such as credit cards, you'll notice those minimums go down every month. If you do minimum payments it will takes a VERY VERY LONG time to get everything paid off. You want to pay as much as absolutely possible every single month to get these debts paid off.

Get Debt Free By Getting Rid Of Bills You Do NOT NEED

One of the easiest and most effective ways of Getting Debt Free is to eliminate excess expenditures. To do this you MUST be honest with yourself, you MUST be willing to stop "keeping up with the Jones's" and you MUST persevere. We are going to continue using the example budget illustrated in our first blog "Get Debt Free by Creating and Following a Budget" to show how we can trim the fat from our budget. For reference, here it is:

Rent/Mortgage - $1000
Auto Insurance - $120
Auto Loan - $400
Auto Loan #2 - $300
Life Insurance - $65
Water - $40
Electricity - $80
Garbage - $20
Natural Gas - $120
Childcare - $500+
Gasoline - $300
Groceries - $1000
Telephone - $40
Cable - $50
Internet - $50
Cell Phone - $100
Credit Card - $100
Student Loans - $100+
Total - $4385++

Looking at the budget above you SHOULD be able to spot at least 3 items that can go without even a second thought. I see even more. Cutting out the cable, the internet, and any cell phones are an extremely easy way to pocket an extra $200+ per month. I know what you're thinking, "how am I going to survive without these things?" It is pretty simple really, and all you have to do is ask anyone who was alive about 10 years ago to find out that it is not only possible, but you might actually grow to prefer it. The next two items are BIG, and for a lot of people they are even harder to deal with. The cars MUST go. If you are serious about getting debt free you MUST cut out the auto loans. These are DEBT, and in this example it's zapping your wallet of $700 a month. At least 80% of that is going to be gone when that loan is paid off in the form of INTEREST and DEPRECIATION. New cars are the single biggest difference you can make in transforming your finances. Get rid of them. For intelligent people the sweet spot is going to be a $4,000 to $6,000 car. If you are driving a new car you paid this much in down payments and taxes before you even drove it off the lot, so don't make the excuse that you can't come up with $4,000 to drive a decent running car.

Now that we've trimmed some major debt saving fat off the budget in this example, we've managed to save about $900 per MONTH!! Now we can start paying that extra $900 a month to our credit cards and student loans to get out of debt that much faster.

Get Debt Free by Creating and Following a Budget

Ok, so you have stumbled across Get Debt Free Online and are probably wondering how on earth to get out from underneath a pile of debt. This is a problem that plagues many people but the answer is much easier than the actions. Even though it is tough to get debt free, it CAN be done and I will show you how to get there.

The first major step in becoming debt free is knowing where you stand. This means you MUST create a budget. This is VERY important. In order to become debt free you need to know what income you have coming in and what expenses you have going out each and every month. My personal budgets take this one step further, you also need to account for expenses that are certain to occur annually, such as vehicle registrations.

What do you put in a budget? I'll show you what a typical expense budget might look like for the average American.

Rent/Mortgage - $1000
Auto Insurance - $120
Auto Loan - $400
Auto Loan #2 - $300
Life Insurance - $65
Water - $40
Electricity - $80
Garbage - $20
Natural Gas - $120
Childcare - $500+
Gasoline - $300
Groceries - $1000
Telephone - $40
Cable - $50
Internet - $50
Cell Phone - $100
Credit Card - $100
Student Loans - $100+
Total - $4385++

Looking at the above, each item taken alone doesn't seem like too terrible an idea. But together things begin to get out of hand. In the above budget we have nearly $4400 of monthly expenses, AFTER taxes. In order to BREAK EVEN on this type of budget you MUST be bringing in approximately $70K. Keep in mind this doesn't include children's doctor's visits, and all the other annual crap we haven't even addressed yet, such as enrollment fees, the vehicle expenditures such as registrations and the one off mechanical failures that can cost an arm and a leg. It's no wonder people are up to their eyeball's in debt. Most people don't make $70K and most people have all kinds of oddball expenditures that aren't outlined on the above budget. In order to know where you can cut back, you have to know what you have.

My assignment to you folks out there reading this is to do this very first step. Make a budget and BE HONEST - it will do you no good if it isn't accurate. Once we get this done we will be talking about such things and debt equity and discretionary spending. Let's get our budgets prepared so we can begin working on a plan to GET DEBT FREE!!!