How Do you get out of debt?
53Debt free in 36 Months
Interesting question........here is the answer.
Assuming you do not have 100's of thousands of dollars that you owe you can work a simple to use formula that has helped 1,000's become debt free in 36 months.
First begin with totalling all your debt.....that's right total all debt owed and take a long hard look at the figure. Do not include your mortgage. This is strictly for your credit card, automotive and miscellaneous other debts.
What you see before you is what you need to pay off. Take that amount and divide it by 36 months. IE: 10,000.00 divided by 36 = 277.77 month
This will not include interest rates so bare in mind that those accumulate over the 36 month period. A good rule of thumb is that if you take the APR monthly and add this to your total montly out put you should be debt free in 36 months.
What you do not want to do is pay the minimum amount due on your total financed debt. This will barely pay off the interest and fees.
NOW! DO NOT INCUR ANY ADDITIONAL DEBT DURING THIS TIME PERIOD. this will only add to your current problem. Take the time to call your creditors and explain that you are going to cancel your credit cards for a lower monthly fee.......some companies will lower your interest rate to keep you. This too will help lower your debt.
There are a lot of companies out there that will work with you in a debt consolidation and pay off regimine. Be careful though because some of them are not accredited.
DO NOT BORROW MONEY TO PAY OFF DEBT. This is a biggie.......unless you can lower your payments on your mortgage at the same time as paying off you debt this one never works. When I say lower.......I mean substantially lower your payments by 250.00 or more a month.
When you come to terms with what you decided to do to become debt free....DO NOT CANCEL YOUR CREDIT CARDS.....your available balance will increase your score and therefore make you eligible for lower interest rates in the future.
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Comments
agvulpes,
I understand your concern and yes, if they extend, but not if they achieve a lower rate for the remainder of the term....read below.
The mortgage industry offers a couple of options and one is term limits on the loan. This will allow those that have gotten into debt to refinance for 10-20-30 years. If they have already paid for 10 years on the mortgage then they can refinance for 20 instead of the customary 30 to maintain the loan for the same time period as before and only pay off the debt. THis again would only work if they do a no-cash-out refinance/consolidation loan. Which ultimately means that the debt and the home are all that gets paid off.
Now I will state again that with the lowering of the interest rate....they need to save 250.00 or more a month before considering this option basically because they need to keep the debt for a shorter time rather than extend themselves an additional amount of time. I only recommend this if they can achieve both a lower payment for the remainder of the original term without extending, and the pay off of the debt must still equal a savings of 250.00 or more.
LL point taken. In Australia if you have a fixed mortgage loan and want to refinance there can be a very heavy penalty for exiting, even if you take a loan with the same bank. The fee is at the discretion of the bank, but can be the amount of interest that would have accrued until the end of the fixed term. People should be very wary of this before they jump. The fee can amount to thousands of dollars, which could cancel out any other savings.
agvulpes says:
14 months ago
Loan Lady.I'm not to sure about that mortgage plan.
If people consolidate their loan and lower the repayment, would that not extend the repayment period out to an unacceptable term.
I do agree though that people should make a plan and stick to it!