If you’re
reading this because you’re concerned about your debt and looking for
resources to help you get out of the red, you are in
good company. Household debt in the US has increased 37% from 2000 to 2011, the
Census Bureau reports. The good news is your age group has seen the smallest
increase in debt in 10 years. The bad news is your parents and grandparents
have seen the largest increase.
· Under
35 – 12.6% increase
· Age
35-44 – 24.6% increase
· Age
45-54 – 36% increase
· Age
55-64 – 64% increase
· Over
age 65 – 115% increase
Don’t make
the mistake of thinking you’ve got plenty of time to reverse your financial
situation, and don’t be afraid to ask for help. Financial
guru Dave Ramsey’s snowball plan for paying off debt is a good start.
List your obligations
Create a
spreadsheet (or write it on paper) listing all of your debts and sort them from
the lowest amount due to the highest amount due.
Stop spending -
start saving Ramsey
says the first step is to accumulate $1,000 in savings, which you won’t touch
except for emergencies. While you’re saving, pay only the minimum payments owed
on your loans. Once you reach $1,000 in savings, take the amount that you were
setting aside each week and add that to the minimum payment of the account with
the smallest balance.
Pay the smallest
debt Once that’s
paid, the next largest, is up. Each time the debt is paid down, the more money
in the pocket you will have for the larger debts— the snowball effect. To see
how long it will take you to pay off a credit card if you pay minimum payments
or a monthly fixed amount, use Bankrate.com’s credit card calculator. You’ll
need to know your card’s interest rate (Note: Tightwad’s favourite financial guru Gail Vaz-Oxlade says the exact
opposite – see here).
Cash in an annuity
If you are
receiving periodic annuity payments, you might be able to cash in all or a
portion of your future payments and use the lump sum of cash you receive to pay
your loans sooner. A company like J.G. Wentworth will evaluate the terms of the
annuity payments you receive and give you a quote for purchasing all or
part of those payments.
Use an accountant However you get
yourself out of debt, run it by an accountant or financial adviser. If you
don’t have one, ask friends and family to recommend someone. The small
consultation fee is worth paying if it means one more step to financial
freedom.
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