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Dec 3 2012 12:00AM

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Question

How can I get rid of my debt?

Answer

We recommend the following steps to reduce or eliminate your debt:

  • STEP 1 - Address Your Debt  Identify your overall cash flow and cost of living.  You can’t know where you’ll find the money for addressing your debt without knowing where your money is currently coming from and going to.
  • STEP 2 – Determine a Realistic Level of Expenses – Identify your daily, weekly and monthly expenses. It won’t help you deal with debt if you set out on an unrealistic path, thinking that you’ll eat noodles and water for every meal and never rent a video until your debt is paid off.
  • STEP 3 – Make Adjustments – Make adjustments in your expenses and/or cash flow if they’re not sufficient to cover your expenses. In other words, if you discover that you’re spending more than you bring in every month, you have to change one or both ends of that equation.  As an important side note, remember - once you’ve eliminated “bad” debts, the greatest thing you can do for your financial well-being is to live below your income.  This will give you a cushion in the future.
  • STEP 4 – Payoff Debt – Apply payments to either the debt with the highest interest rate (if you have more than one outstanding debt and they’re close to the same amount) OR to the debt that will be paid off fastest, which will allow you to then focus on another debt with even more money than before.

There are details to some of these steps, but this is a good four-point starting place for addressing your debt.

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