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How To Handle Debt

The first step to handling any problem, and excessive debt is no exception, is to focus on facts. Here, that means finding out how much you actually owe and what the monthly payments and interest costs.

Amazingly, some people have so much debt they have no idea how much they are actually paying in interest. Some have no desire to know. And when you consider the figures that is understandable.

But a true analysis of the problem is the first step to a solution. You could unknowingly be paying a good percentage of your monthly income to interest charges. Which basically means you will have absolutely nothing to show for that money. You may have the pleasure of enjoying the things you purchased. But could it have been better to wait a while and save for those items and not throw away a percentage of your income every month?

When that $200 a month (and for many, it's much more) becomes the total you can pay each month, you have reached a point where you will never pay off the debt. If all the money is going to interest none is going to principle. That may be an extreme case, but consider how much of the monthly payment in your circumstances goes for interest versus repayment of principle.

In the case of your average mortgage, for many years about 90% of your monthly payment goes to interest. You can go on line and calculate how long that will take in your case to pay off.

For example, if you borrowed $10,000 and your interest rate was 7%. It would take 10 years to pay that off making payments of $116 per month. You will have paid close to 40% of the original amount of the loan in interest, almost $4,000.

Now that you've seen your situation, you need to take two further steps. Develop a budget that will allow you to make payments as large as you can handle to get the bills paid off. You could use the 'snowball method' and pay off the smallest one first. Then apply what you were paying to the smallest to the next smallest (now the smallest), until you've reached the end.

Alternatively you could pay down the largest bill. That would save you the most in interest charges, but it's hard for many people to stick to it, when they see such slow progress.

Article Source: http://articles.yournetguru.com

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