Eliminate your Debt

Here are five steps to help you eliminate your debt and set yourself up to avoid problems in the future.
The world has advanced so much that nothing has become impossible. Technology has widened to a greater extent and simultaneously the way of living has also risen. But what in this high standard world is the amount of debt that has be created.
Getting out of this debt is obviously what one would desire but how? No one knows.
Here are five steps to help you eliminate your debt and set yourself up to avoid problems in the future.

1. Know what you owe: Figure out exactly whom you owe and for how much. Make a list of all your debts, minimum monthly payments, due dates, and interest rates. Rank your debts in order from those with the highest interest rates to those with the lowest. Determine which debt (if any) is worth keeping.
2. Set up a budget and pay up your debt:If you don't already have a budget, now is as good a time as any to start one. A budget will help you determine how much debt you can pay off, as well as where you can trim expenses to end up with more money to pay up debt.
3. Lower your borrowing costs: Review opportunities to transfer your loan to another provider who offers a more competitive rate. In the context of home loans, this is colloquially referred to as a 'balance transfer'. Based on the offers on hand, you should even consider negotiating with your current loan provider.
4. Set up an emergency fund: To keep yourself from falling back into a debt trap, you need to set yourself up for a secure financial future. An emergency fund is your financial cushion to help protect you from unexpected expenses (say, expenses on account of a medical contingency) or changes in income (such as losing a job). You should keep this fund in a safe and liquid avenue like a savings bank account.
5. Live within your means:This is a hard but necessary truth. Stick to cash whenever possible for future purchases. If you don't want to carry cash, use a debit card instead of a credit card. Even when you use a credit card, ensure that you pay it off every month and pay it off on time!

Source: http://www.rediff.com/getahead/slide-show/slide-show-1-money-five-steps-to-reduce-your-debt/20120718.htm

Go on a Debt Diet

If there is one constant in this ever-changing world of ours it is over-indulgence. Too many desires and too little self-control. So these days everyone is on a diet and everyone is in debt. The reason for both is the same - too much of a good thing can be bad. If the cause is the same, then maybe the cure is the same? Let's explore.

1. Make a list
Just like you would start a diet by making a list of all that you eat, start a debt less existence by first making a list of all that you owe. Just like good foods and bad foods, debt too can be either good (home loan, education loan) or bad (credit card or personal loans).

Good debt involves lower interest rates, plus you get a tax benefit, not to mention the fact that it goes for a useful purpose. Bad debts on the other hand are expensive and more easily available, tempting you to spend beyond your means.

2. Rank it
Now, in a diet you'd classify the foods to be banned into a ranking order, starting with the worst, say French Fries. Similarly, ban debts which are too expensive by ranking them in order of interest. Start with the one that's the worst e.g. Personal Loan which is a loan that needs lesser collateral/ security thus implies higher interest rates than a secured loan. A home loan (secured) may cost you 11 per cent p a, while a credit card loan (unsecured) may cost you as much as 36 to 42 per cent a year. Rank all your debts, starting with the most expensive.

3. De-Tox

For a successful diet, you need to detoxify your system to begin a healthy life. In debt too, you will begin detoxifying by removing your bad debt to start a financially healthy life. Pay in the order of rank established above. Repay unsecured and high cost debts like credit card or personal loan outstandings first. Though, the amounts may seem small, along with interest, they can accumulate to huge debts.

4. Step it up

You can step up your freedom from fat by complementing it with exercise. Similarly you can step up your freedom from debt by pre-paying.
Suppose you come into some money -- would it be a good idea to invest it, or would it be better to prepay a debt with it?
Compare the interest amounts -- what you can earn by investing and what you need to pay on the outstanding amount. If interest earned is higher than interest payable, then invest, and vice versa.
Do remember to add prepayment charges to your cost of borrowing when comparing. But if it's a bad debt like your credit card debt, repay anyway!

5. Substitute

Sugar and interest are silent killers. Substitute high cal sugar with low cal sweeteners. Similarly substitute high interest loans with low interest options and use the money to pay off high interest loans. For example, if you have a high interest credit card loan, find a credit card that charges a lower interest rate and transfer your balance to this one. This is mostly done free; if not - negotiate to have the transfer charges waived.

Alternately, explore a home loan top-up. Most banks will offer you a top-up as per your eligibility, and is lower than the high interest loans. The same holds true for your insurance policy. You need not tell the bank why you need the loan so borrowing is easy. A last resort is to replace your credit card loan with a personal loan.

But remember, both dieting and getting rid of debts is not a one-time exercise. Give in to temptation and you're back to square one. But personally, I find dieting a bigger challenge -- all the rules in the world melt in front of a brownie with chocolate sauce.

Source: http://www.moneycontrol.com