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First Step In Living Debt Free - Learn How To Calculate Debt
Although this may appear to be a daunting task in the beginning it really is quite straightforward - all you have to do is get on with it. Don't give up in despair half way through because the information you will have by the end of the process will tell you exactly how much debt you have. Knowing this will empower you and it puts you one stage closer to becoming free of debt for good. Here are some steps to get you started. Dig Out Those Unpaid Statements For every outstanding debt you have, gather together the most up to date statement. If you have some missing or have misplaced a few, contact the company concerned and ask them to mail or fax you a copy as soon as possible. Get a Clear Picture The only way to become debt free is to have a clear picture about the amount you owe. Include all your debts in your the calculations. There is no point in setting a plan of action, only to discover you forget to include a large chunk of your debt! How disappointing would that be? Prepare a worksheet with the following headings and list your individual debts under each heading. For example, under credit card debt, list each credit card you have. Include department store cards and any others that fall under credit card debts. * Credit cards and lines of credit * Domestic support yet to be paid * Buy now Pay later agreements (even if you have three years left to pay) * ALL loans including personal loans, student loans and those from friends and family members * Outstanding household bills including medical fees * Pay advances from employers or money marts * Any taxes due from income, property and any others * Vehicle financing What did you Buy to Get into This Debt in the First Place? Assuming that credit cards make up for a large percentage of your debt, Write down exactly what you used the cards for. You will get a sense of how much interest you are charged each month. Did you dine out a lot? You will see that those meals out cost you more than you thought they did. At the time they may have seemed delicious, but now cost more as you haven't paid for them yet. That meal went from $30 to $50 in a short period of time. This important step will keep you in touch with how your money is being spent and how much it is really costing you. Record what your Credit Limit is for Each Credit Card or Debt When listing your debts on your worksheet, write down the limit of each credit card or other type of debt and add these amounts up to get your total possible debt. You can find information about your limits on your statements. This will show you the total possible amount of debt you could have. Are you at the top of your limits? Or could you go further deeper into debt? Either way now you know how bad it can get. Total up Your Debts and Start Creating Your Plan of Action The next step is to write down the outstanding balance for each debt you have. When you have totaled these figures up, you will have your overall debt amount. At this point, pat yourself on the back. You have gone this far and not give up! I know you may want to fold your worksheet up and throw it in the garbage in desperation - But don't! You have reached this point and you are fully aware of the situation. You are now in a position to actually DO SOMETHING about your debt problems. How Much Interest Are You Being Charged? Alongside each debt write down the annual interest rate you are being charged. You will probably need to check out the small print here as this information is not always easy to spot. Take a look at what you have entered and compare the interest rates being charged by the different debts you have accrued. Why Doesn't Your Debt Seem to be Decreasing? Next you want to look at your how your debt is snowballing. Record on your worksheet what your minimum payment is for each debt. Usually your minimum payment is a percent of the balance you owe. If the interest added to your debt each month is high, you may find that it is actually less than the interest charge for the month. If this is the case then the extra interest is added to the principle and you will be charged interest on top of interest - hence your debt is snowballing. If this continues you will never pay off the debt completely by just paying the minimum payment amount. What is your Minimum Payment for all Your Debt Each Month? Total the minimum payment amounts to see what your total minimum payment is. This will give you how much you will need just to pay the minimum amount each month. Now you can go back to your budget and see how much you can afford each month to pay off your debt. For more information and examples on calculating your debt and for a free Debt Schedule check out http://www.transformyourmoney.com/how-to-calculate-debt.html Article Directory: http://www.articledashboard.com Melanie Fine, CPA, founded Transform Your Money after working with people as a CPA for many years. Melanie realized that she liked working with people rather than numbers. She loves to show them how easy and fun it is to have power and freedom around their money. Melanie's approach is one of inspiration and empowerment. Check out the Transform Your Money at www.transformyourmoney.com and sign up for our FREE newsletter and get your FREE gift! |
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