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Identifying The First Steps To Paying Down Your Debt

Author : Nick Hunt

Debt problems are causing misery for more people than ever before, and levels of personal debt are at their steepest ever. A lot of us want to begin paying off our debts, but the undertaking can seem overfacing. There are, however some good methods you can use to get started on the way to a debt free future,

First Of All, it's critical to take a look at your expenditure and rein it in whenever feasible. There's little point in aiming to pay down debts with one hand while the other is occupied running up new borrowing. Make a commitment to stop using your credit cards except as just a way of shopping, always paying back what you've spent when your monthly statement arrives. Also look at economising on your day-by-day outgoings - purchasing cheaper goods, forgoing the occasional treat or social event, it all adds up.

But this on its own will do little to clear your debt - you need a plan to reduce it as quickly as you can, and this is where the idea of 'debt snowballing' comes in. Basically, you focus your effort into clearing one debt as quickly as you can, putting all your spare money into this effort while keeping up your other debts at their nominal repayment levels. Once this first debt has been repaid, add the monthly repayments you'd been making on it to the payments on the next debt in the queue. This way, the potency of your money gets greater and greater as it transfers from one debt to the next.

If you're having extreme trouble making your repayments, though, the last two methods aren't going to avert disaster. It's at this point that debt consolidation might be a useful alternative. The underlying idea is to take out a new line of credit, and use it to clear all your existing debts. The idea is that paying back your new single loan will be more affordable than the combined fees, interest and charges of your former debts, and so more of your funds will go towards reducing the amount you owe rather than just pouring money down the drain paying the interest.

You really need to take care with this last option though, as you're potentially adding to your debt problems rather than relieving them. Be sure you have the self-discipline to clear your old debts and not run them up again before going down this route.

None of these choices are easy, and none are without their downsides. However, most of us accept now that debt levels are too high and we need to start doing something to bring them down, whatever the short term discomfort that might be the result. By taking these suggestions and putting them into action, you can make that first step towards becoming debt free.

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Nicholas writes on various aspects of personal debt, from managing credit card debts to stopping repossession.

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Tags:   debt problems, debt free, personal finance

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Submitted : 2011-04-05    Word Count : 505    Times Viewed: 389