Debt Reduction Essentials
If you find yourself getting buried by a plethora of monthly debt repayment obligations and have decided that it’s time to do something about it, the first step to take is to put pen to paper and list out all of the debts that you owe. For each obligation, list the amount that you have left owing, the interest rate, and the minimum monthly repayment.
Once you’ve done this, the next step will be to sort these debts according to interest rate. The higher the interest you are paying, the greater the reason to focus all of your efforts into clearing it. The one with the highest compound interest rate will become debt elimination target number one! If you have a little disposable income at the end of each month, this is the debt you want to pour that into. The "How To" methodology of doing this is covered in the following article on debt elimination.
If you’ve reached the point where you’re unable to manage all of your repayments, contact the creditors which have a lower interest percentage as per your list, and negotiate with them to see if they have any flexibility in their repayment terms. If you have a mortgage, you might like to also employ the techniques in the following home loan reduction plan. You can show your creditor your debt reduction plan, your monthly income and expenses, and the amount you have spare each month to allocate to your debt reduction plan, and thereby accurately forecast how long it will take you to eliminate each of your debt targets, including theirs.
If a creditor can see that you have a plan in place and that you have the means to follow it, they will be more amenable to re-negotiating the terms of your repayment.
Creditors generally have no interest in selling up your house or assets. This is only a last resort for them. If other alternatives are available and they can see that you are willing and able to repay them, even if this be on a more delayed scale than was originally set by your loan agreement, then a creditor will often to open to renegotiating your repayment terms. Try to get them to waive any late payment penalties or charges by pointing out to them that this will be counter-productive to your repayment plan.
Whatever they agree to, make sure you get it in writing. Failing to have a
written record of your agreement can come back to bite you down the track.