Steps to Eliminating Debt

Debt is easy to get into. We all buy things on credit,
take loans out to get instant money or pay for goods on
credit cards. Credit can take minutes to build up, but
years to pay off. When debt builds up we end up paying
regular monthly payments that simply increase every time we
get more credit.

The first thing we all have to do to clear debt is stop
getting into any more debt. If you never took out another
loan and cut up your credit cards then after a while you
will pay off all your debt (provided you are making regular
monthly payments).

However, there are lots of clever ways to pay off debt
quicker and help you to become debt free. Simply make a
list of all the debt you have. This is everything that you
pay to a creditor and includes any loans, credit cards,
financed items such as the finance on your car or furniture
and also the big one, your mortgage.

You should know:

1. How much the debt is for or the total amount
2. How much is left to pay off the debt
3. What you pay every month
4. How many months you have left to pay
5. AND the interest rate you are being charged

If you add the amount of debt (number 2 above) you have
left on each one of your debts then this is how much you
owe to creditors. If you then add up all the monthly
payments (number 4 above) then this is what you have to pay
every month. Once you have worked this out then you are in
a good position to start working out the fastest and
cheapest way to clear this debt.

Paying off the debt as quickly as possible:

There are several ways you can pay off debt quickly. Some
will be better than others and it also depends on the type
of debt you have.

The interest pay off - Targeting number 5 on the list above

If you have a credit card or mortgage then you should be
charged interest monthly on the amount of credit you have
left to pay. If you pay off larger amounts off this then
amount you have to pay every month goes down. The more you
pay off the less you have to pay in interest every month.
If you take the credit card or loan that charges you the
highest rate of interest, then paying this off earlier
saves you the most amount of money every month. Once it is
paid off, you move to the next credit with the biggest
interest rate. Because mortgages usually have the lowest
interest rate out of all your loans or credit cards and is
secured debt you should leave this until last on your list.

For some loans, creditors can sometimes charge the entire
interest on the full amount across the time you have to pay
the loan so that if you decide to pay a loan off early, you
may still end up paying the same amount as if you continue
to pay the loan every month. In this case you are probably
better off not paying that specific loan early and focusing
your efforts on a different loan.

The minimum loan pay off - Targeting number 2 on the list
above

If you take a look at all your loans and start paying extra
on the smallest loan then this will be paid off the
fastest. Once you pay this off, take the amount you were
paying on that loan and use it towards paying off the next
smallest loan. Eventually you will again end up with only
your mortgage left which if you use all the money you used
for your other loans this will also be paid off much faster.

The biggest payment pay off - Targeting number 3 (or 4) on
the list above

This works best for small loans with fixed payments and is
great for people who find themselves with lots of loans
with money to pay off on all of them. Because you want to
reduce the amount of time and money you have to use to pay
off the loan you simply target the largest payment you have
to make every month. This may be the loan with the highest
interest or the one the one with the highest balance. Once
you put everything you can into paying this off your
monthly payments will suddenly drop.

You can also do this by targeting the loan that has the
least number of months left to pay off the debt. This will
reduce the monthly payments quicker.

This will leave you with a lot more money every month and
helps to control your finances better especially for people
that struggle to pay off their loans. Clearing the loan
that takes the highest payment every month has the biggest
effect on your bank balance every month. Clearing the loan
that has the least number of monthly payments left has the
fastest effect on your monthly bank balance.

The clever part is to then use the money you save once you
have paid off the loan to pay the other loans off faster
and not to get comfortable with the debt you have left.

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Should I use a credit repair service?

There are some benefits to using a credit repair company
and there are some real disadvantages too. The first thing
to think about is why you want to use a credit repair
service? Is it because you have bad credit that you want
to fix but simply don't know how? If this is true then try
reading a bit of information about how to fix bad credit to
see if you think this is something you can do.

If you don't have time to sit down, write letters and go
through the credit reports to see what you can dispute,
then a credit repair company is probably for you. A credit
repair company will take care of all the tedious tasks that
are involved in disputing bad credit marks on your credit
report. You should however make sure that you use a
company that knows the law so that they can properly
understand your needs.

To fix bad credit yourself, all you have to do is request
your credit report, read what's on it when it arrives, and
write a letter to dispute the bad credit that you believe
is unfair or untrue. At this point you can also write to
your creditors to try and negotiate a reasonable pay off
plan in return for removing the debt from your credit
history. When you pay a credit repair service, this is
practically all they do. Firstly they request your credit
report or reports, if they are requesting more than one
report from the three big credit bureaus.

When not to use a credit repair company

A good credit repair service will be upfront and honest
about what they can and can't do. They will be clear about
how much they charge and clear about what you will get from
the service.

A bad credit repair service will probably do some the
following:

* Try to confuse you with financial jargon so you don't
understand what they are doing
* Don't tell you what your legal rights are
* Tell you not to contact one of the credit bureaus
directly yourself
* Suggest that you try to invent a new credit identity and
then apply for a new credit report. This can be done by
applying for an Employer Identification Number (EIN) to use
instead of your Social Security number.
* Tell you to try and remove all your bad credit regardless
of whether it is true or not. If you do this and are found
to be committing fraud, you may be held responsible
yourself.

So if you are thinking about using a credit repair company
you should remember three things:

* Only inaccurate information on your credit report can be
removed. So if a credit repair service says they can
repair you credit 'guaranteed', this simply isn't true.
Credit repair companies have actually been successfully
sued for claiming they can remove bad credit when in fact
they can't.

* Credit repair companies can charge high prices for doing
something that is pretty routine, so don't pay big prices
because it probably isn't worth it.

* When a credit repair organization requests your credit
report, the credit companies won't accept any disputes
unless it is accompanied by a notarized power of attorney
that authorizes a licensed attorney or if the power of
attorney is unlimited and irrevocable. Alternatively you
or a family member can do it on your behalf.

Using a credit repair service can greatly help you to start
to repair your credit score quickly as they can quickly
identify where the problems lie in your credit report and
highlight any errors that may have been made.

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