One major problem for many people today is that it is easy to know that you have problem with debt but to know precisely how big the problem is. In fact you may be surprised to discover that a significant proportion of those people with debt problems have no idea how much they owe or how much they are paying in interest on their borrowings each month. Consequently, your initial task in sorting out your debt is to find out precisely how big your problem is.
Write out a list of all the debts which you currently have, separating out how much of your original debt is still outstanding and how much you are currently paying each month. You also want to separate out each payment to see how much of the payment represents a repayment of the original loan and how much is simply interest.
You may be taken aback by what you see, not only in terms of how much money you owe, but in terms of how much of your monthly income is simply being used to repay interest. For example, if you are earning $4,000 a month and are paying $400 each month simply in interest then this means that you are paying out 10% of your monthly income without reducing the total amount you owe. If this sounds bad enough, then take it one step further. If $400 is the most you can afford to pay each month then you could continue paying this sum for years without actually reducing your debt at all.
Hopefully the difference between the amount that you are paying in interest and the sum being used to repay your original loans will be more realistic and it is difficult to quantify exactly what this should be because it will change from one loan to another. In a typical home loan for example it is not unreasonable to be paying 90% interest and 10% principle in the starting years of a mortgage, however you most assuredly do not want to be paying this on your credit card debt.
Once you have calculated how big the problem is the next thing you ought to do is to draw up a plan to pay down your debt as soon as you can. For this you are going to need to calculate how much you can afford to pay each month and then work out how this amount should be applied to your different debts.
One possible answer is occasionally called the 'snowball' approach and involves clearing your smallest debt first. You will then have more money available to pay off your other debts and can progressively work your way up towards your biggest debt.
A second answer is to take on your largest debt initially and thus save the greatest amount of money in in essence wasted interest payments. However, this is not an easy method and progress tends to be slow making it difficult to keep to this plan.
Whatever plan you follow you must not simply ignore some of your debts while paying off the others or you will fall foul of your creditors and adversely affect what might already be a damaged credit record. If you find that meeting at least the minimum payment on all your debts then you will have to talk to the lenders in question and see if they are prepared to help. Almost all lenders will have a debt reduction settlement program and they will generally agree to assist you by accepting reduced payments for a short period, or possibly even to waive your payments for a couple of months, as long as you clearly explain your situation to them.
If you find yourself in a mess and are trying to figure out how to deal with your debt then do not make matters worse than they already are by taking on more debt. This may appear to be obvious but you would be surprised by how many people in debt try to borrow their way out of debt. This never works and merely makes an already bad situation even worse.
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