Understanding Debt: How bad is your debt situation?

Understanding Your Debt

To become debt free you must first understand your debt. What you owe, who you owe it to, what the interest rate is, and your total debt. One way to do this is by making a list of all your outstanding debts. Include the following information for loan or debt:

Creditor - the bank, credit card, car loan, etc. that you owe
The total amount of debt you owe for that loan
The interest rate
The Monthly payment you owe on that loan

Now make a running total of all your debts. Be sure to include all your credit cards, car loan, home loan, any store loans, student loans, etc. Any debt or loan you have. What is the total debt number? It's probably higher than you thought. But to get debt free you need to face up to your debt and not ignore it. No matter how scary the reality is, you need to accept it and start working to reduce the total debt amount.

Now list each debt starting with the highest interest rate to the lowest. Maybe (hopefully) some of this debt is at a low rate, like a student loan or a mortgage or a good low-rate car loan. Likely you will have some credit cards at some very high rates at the top. It is this high interest rate debt that you need to tackle first. The first step to becoming debt free will be to stop using all your income to pay for interest and start paying off some of the principle. Paying off anything at first will be tough, but as the higher interest rate loans get paid off, it will get easier and easier. You will be able to slowly pay off more and more of the principle. This will start to lower your overall debt total and will accelerate your road to debt freedom.