Debt Management

Paying off Debt

Step 1: Make a Pledge
To begin, you should make a pledge to yourself that over the next three days, you will:

* Plan on taking four very easy steps to increase your chances of having a secure financial future.
* Promise yourself today - right now, this minute - that you won't be surprised by financial windfalls or pitfalls in the future because you're going to plan accordingly.

Don't get too pumped up now, we're not talking about giving up your daily Starbucks here. This is going to be a lifelong process, but it's important that we get started sooner rather than later. There is no exact date for this "financial pilgrimage", so no work will be missed, no concerts will be passed up and no after-work sports leagues will be canceled. Relax. The advice below will require that you make one stop at a local store and possibly visit a couple websites.

Step 2: House Keeping
a. Get a file system and get the folders to go with it. They are pretty cheap at your local office supply store. A simple file cabinet (plastic or otherwise) and some simple file folders are all that's needed here.

b. Get your most recent credit card statements, phone bills (if you pay online, print a copy), insurance information, your user names and passwords to websites, etc. Make sure to get basically everything that you could look for later but usually can't find right away when you need it - like the receipt for that wedding gift you have to return or your eBay password you can never remember. Now file all these statements, bills and receipts into the filing system you just bought. It generally helps to have the most recent document to the front of the file, but how you choose to file will depend on your personal style.

Make sure to keep adding to these folders as new bills and statements come in. Your goal here is to keep these files organized and up to date so you can always find what you're looking for when you actually need it.

Step 3: Set up an Emergency Fund
No one eagerly anticipates negative, unexpected events. But guess what? They're going to happen. It's just a fact of life. Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time. This beginning emergency fund will keep life's little Murphies from turning into new debt while you work off the old debt.

Step 4: Start Paying your Debt
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan. Continue

Step 5: Set up 6 - 9 Month Emergency Fund
Ask yourself, "Self, what would it take for you to live for 6 to 9 months if you lost your income?" Your answer to that question is how much you should save. Remember, this stash of money is not an investment; it is insurance you're paying to yourself, a buffer between you and life. Continue

Step 6: Paying off Mortgage and other long term loans

Step 7: Investment and Saving

Most importantly, remember one last thing. Your economy is up to you. If you are out of debt and have money in the bank, then the media can talk up a storm about a recession, but you won't feel it. When you have a plan, live on less than you make and save money, you are not in trouble. If you have a paid-for house, who cares if foreclosure rates are up? You are all right. If you have no credit card debt and the plastic companies decide to raise interest rates to 50%, how much will you care? NOT ONE BIT! Take care of your personal money situation, and everything else will take care of itself.