UNDERSTANDING AND DEALING WITH DEBT: PAYMENT PLAN.

In starting to manage your debt, it is necessary to fully appreciate and understand your current situation. You need to comprehend your current debt and to decide on a strategy of how to deal with it. First, write down all of your creditors with the balance owed, minimum payment, and the interest rate. List these creditors from the highest interest rate to the lowest. It is vital for you to understand that not all credit is equal. The credit with the higher interest is costing you much more than other credit and therefore should be dealt with first.

No matter which creditor has the highest or lowest interest, every month every creditor must get the minimum payment that is required. This will prevent damage to your credit report. However, after the minimum payment is made to each creditor, the creditor which is charging the highest interest rate should get all of the available funding that you have allocated to pay back to the creditors. You should not divide this amount evenly among the creditors, but should allocate the funding to the most expensive creditor. Every payment cycle you should use this approach, tackling one debt at a time.

In addition, if you have money invested or stored in saving accounts, bonds, or stocks, you need to liquidate those assets to pay back the debt. The interest rate that the money is earning you in these investments mechanisms is much less than the interest that the credit is costing you. Therefore liquidate these funds and apply it towards the creditor with the highest interest rate.

The next step in fighting the high interest rate creditors is to open other credits with a lower interest rate. Then transfer the balances from the high creditors to the lower interest rate creditors. This will decrease the overall cost of interest.

Following these steps will insure that the debt that you have accrued or will accrue will have the lowest cost, allowing you to pay off debt and start saving.

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