7 Simple Steps to Reduce your Debt and Improve your Wealth
http://blog.moneydashboard.com
You don't always have to invest your income in savings and investments to become better off. This article shows you how to save money by reducing your debts.
For many people, an organised and well prioritised approach to reducing expensive personal debt can accelerate their wealth position much faster. All it takes is a little organising and regular behaviour as summarised by the following 7 simple steps that will improve your overall wealth by repaying debt.
1. Go through your last 3 months current account bank statements. Create a list for ‘Income' (money coming into your current account) and a column for ‘Outgoings' (money leaving your current account). For each month this shows how your monthly budget (income versus outgoings) is looking.
2. Highlight any financial products or relationships in your Outgoings column. This could include either loan, mortgage or credit card payments or regular savings transfers. Spend a little time, finding out more about and categorising each Outgoing.
3. Focussing firstly on the Outgoings you have identified as being ‘debts', ask the following questions; what type of debt is it (e.g. Overdraft, store card, or mortgage)? What is the total amount outstanding? How long will these payments continue? What APR is being paid by you? Try and identify the most expensive form of debt.
4. Focus then on the regular Outgoings you have highlighted as being savings or investments and ensure you understand their key features. Are you earning some capital growth from these activities? Do you understand the risks of the investment? How quickly can you get your money out? Are you paying any tax on these activities? Try and identify the least effective saving.
5. Now it is time to make your plan. You will need to maintain at least the minimum repayment on each of your debts, but can you find a way to accelerate the capital repayment? Even relatively modest increases in the monthly capital repaid to the lender, can have a significant impact on the total amount to be paid back overall. It is nearly always better to prioritise your debts, focussing on the debts that carry the highest APR.
6. Execute your plan. Having decided which debts to prioritise and how that will improve your wealth, you now need to make the arrangements. Contact your lender(s) and ask them to change the Direct Debit or standing order mandates. If you have decided on this course of action, transfer your least effective savings into your most expensive borrowing. Having all of the information gathered during steps 1 – 5 will help you to understand which savings to use and which debt(s) to consolidate.
7. Review regularly. Each month review your budget at the same time as checking your bank statements. Try to set yourself short achievable goals and have the commitment to see them through.
The author would love to hear your views on this approach and hopefully hear back from those who have implemented their own plan.
Article submitted Sunday, January 11, 2009 & read 104 times.
Alan Gill shows people how to save money through his saving tips and advice.
Leave your comments through Blogz:
» left by straight talk (3 years 27 days ago.)
In my opinion the information provided was informative and those interested will be most appreciative.Respond to this comment
» left by Mogama (3 years 21 days ago.)
Thanks, Alan, for writing. You're right that paying off debts has the effect of increasing one's wealth. The only thing I do differently is that I pay off debts from smallest to largest, regardless of interest rates. This is what Dave Ramsey, a successful financial adviser teaches too. Why smallest to largest? Because knocking off the smallest debts bam bam bam gives me momentum and intensity, which I'll need to celebrate some quick victories, and stay on course. It really works. I've done it. Enjoy your day! ~mogama~Respond to this comment
» left by Dave - UK (1 year 224 days ago.)
Great Article Alan. I had around £42,000 worth of debt 15 months ago and now I am down to £16,000. Not far to go now. I will not be beaten by the banks!! :)Respond to this comment