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Updated: October 2008

Going From Debt Consolidation To Debt-Freedom!

6 steps for "do-it-yourself" debt relief

There are few better feelings than being out of debt. Knowing you have your debts under control can make you feel like you have your whole life in control. Getting debt relief is a do-it-yourself job. Here is a simple, powerful plan to get yourself out of debt, and it will only cost you about $5-$6 a day over what you're paying now...

Step 1 -- Analyze your current situation: earnings, bills, obligations, etc. Determine the maximum you can apply to your bills. For instance, you commit $500 a month to clear your debts. If your budget is tight, you'll have to make some hard decisions on scaling back on daily expenses such as regular coffees vs. Starbucks lattes, brown bagging it at the office vs. $10-$15 lunches out, borrowing a book from the library vs. buying one at Barnes & Noble. Almost everyone can find that extra $5 a day to add the $150 extra it will take to eliminate those nagging bills.

Step 2 -- Now, total all credit cards and bills you want to eliminate. Look at the minimum payment due for each one, then add 20%. So if the minimum payment is $50, the monthly payment you'll make from now on will be $60. Total all these bills for Step #3....

Step 3 -- You've set aside $500 a month to clear these debts you've identified. The total from Step #2 is $350. Subtract this amount from the $500. You now have $150 extra money to pay down debt.

Step 4 -- Keep paying all your bills on time with the additional 20% added to each. But, most importantly, apply the extra $150 toward the debt (credit card, personal loan, whatever) that is the largest total on your list, ON TOP OF your regular monthly payment. Not instead of, IN ADDITION TO! Furthermore, put those credit cards away where you won't use them anymore while you're eliminating debt (some say to cut them up, but let's keep it in case of emergency).

Step 5 -- When your largest debt has been paid off completely, apply its respective monthly payment and that extra $150 you've used to pay it down, and apply ALL OF THAT MONEY to the next-largest debt. Same thing: make the regular monthly payment, plus 20%, plus the monthly payment you were making on the paid-off credit card, PLUS the extra $150 you were using to pay it off, and pay this entire amount on that 2nd highest debt, until it is paid off too, and then repeat the process on the 3rd highest debt. This process may take months, perhaps years to complete, but it will start to accelerate once you've finally got a large portion of that $500 going to only a few monthly bills.

Step 6 -- I'd recommend analyzing your need for all those zero-balance credit cards, and close out the ones that have annual fees or that don't meet your future needs by calling the credit card companies and requesting that the account is closed by consumer (make sure they report it that way, it's important that it shows up this way on your credit report in the future so it won't affect your credit score negatively).

Conclusion: Don't miss an opportunity to make massive impacts on your debts by applying a large tax return or extra-large sales commission you weren't expecting to pay down on your bills. It may look like a good idea to "bank" the extra money, but when you're paying out 15-22% interest on your credit card balances and only getting 2-3% on savings account balances, it's clear that you can "earn more" by reducing debt than by setting aside that extra money. The sad truth is, I've noticed that people generally will piddle away any extra income they get throughout the year, and then they can't really say where it went and what they actually bought with it.

The feeling of financial relief you'll eventually feel once you've gotten control of these bills will make this exercise worthwhile. Share these ideas and information you've found on this site with a friend.... they'll thank you for it!

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