Recover From Debt

Seize control of your debt with "attitude." This is a two-step plan:

  1. Admit you have a problem. This will take some number crunching, on paper, to see it in black and white.
  2. Draft a payoff plan and implement it.

You’re probably thinking: "gee, that sounds good if you’re starting off with an even balance and adjusting to a solo income, but a minus sign and a few drops of red ink change the equation fast." Relax. No, it won’t be easy. What really ever is? There are no tricks to make it all go away. What will disappear as a result of your plan is the panic, fear and stress that have paralyzed you and controlled your life since your separation or divorce. A viable plan is your control over negative emotions and the toll they take on you.

Find Your Debt Rate:
List all credit cards and loans Average Monthly Payment
  1. Auto
  2. School
  3. Personal
  4. Credit Cards (Visa/Mastercard)
  5. Sears/Flechts
$150
$75
$150
$75
$50
Total Monthly Payment $500

The figure you have is your monthly debt.

Now divide this figure by your monthly take home pay.

This figure is your debt ratio

Example:

$500 / $2,000 = 25% debt ratio.

Grab a pencil and list all your loans: auto, school, personal, and credit cards. Don’t even think about your mortgage, rent or food. That would be too much to deal with right now. Next, enter your monthly payment for each account. Add it all up (see chart above):

The figure you have is your monthly debt. This is the amount you owe somebody else every month. Makes you look around and wonder if having all that stuff is worth it, doesn’t it?

Now divide this figure by your monthly take home pay... The answer is your "debt ratio". This tells you what percent or part of your month’s pay goes to paying back what you have borrowed.

(For example, if you owe 500 dollars a month in debt payments, and you have $2,000 a month in pay, then your debt ratio is 25%.
($500/$2,000 = 25%.) This means you are spending one fourth of your paycheck just to pay your debts.

How does 25% sound? High? It is. Dangerously high. If 25% of your monthly take-home pay goes toward paying off debts on a monthly basis (and remember, this does not include your food, phone, cable, utilities and mortgage or rent), then you need a major change in lifestyle and would be wise to obtain the help of a professional debt counselor or financial planner.

And again, don’t panic, even if you are at 25 % or greater. You can’t solve the problem without knowing exactly what it is. So now you do know. Is this typical of a family’s debt rate? Take a look. If your debt rate is:

  • 10 percent - Congratulations! just like 65% of all American families, you’re in control.
  • 15 percent - You are in the high average. No cause for alarm, but do slow down your charging and whittle away your debt rate to the comfortable and affordable 10%.
  • 20 percent - " We have a problem!" You are in the minority if your debt rate is this high. Only one in five persons owe this much. Stop using credit immediately and start reducing your debt!



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