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It is shocking, though perhaps it should not be, the number of people who are troubled by debt problems, do not know exactly how much monthly interest they are paying. The problem could be that they really do not wish to know. Considering how much it sometimes is, one can scarcely blame them.

Again, first step returning to financial health would be a good diagnosis. If you are paying $200 a month just in interest charges on a net monthly income of $4,000, then you are paying 5% PER MONTH of your income for practically nothing. It is not entirely nothing, considering you enjoy the things you buy early. One would have to save to purchase them outright. Is that worth 5% of your income?

When that $200 a month (for many, it is much more) becomes the most you can pay each month, you have entered a position where you will never pay the debt off. If all of your money is going to interest none is going to principal. This may be a bit extreme,  but consider how much of the monthly payment, in your circumstance, goes for interest versus principal repayment.

Suppose your payments are 90% interest and 10% principal. That is approximately the case for most average home loans for the first few years. Online calculators are available to see how long that will take in your situation.

Suppose you owe $10,000 at 7%. You could pay only $116 per month, but it would take you 10 years to pay it off. The interest would cost you $3,933 - nearly 40% of the total amount.

Now that you have seen your situation, you msut take two further steps. Develop a budget that allowikng you to make payments as large as you can handle to get the bills paid off. You could try the 'snowballing method' and pay off the smallest debt first. Then apply the old payments from the smallest to the next smallest (now the smallest), continuing until you have reached the end.

Alternatively you could pay down the largest bill. This will save you the most in interest charges, but it is hard for many people to stick with, when they see such a slow progression.

Now, for the most difficult - and most important - step (which should be carried out simultaneously with the first): do not borrow money. Do not allow yourself to incur any further debt, without having first paid the previous debt down to a reasonable level. This point is 0$ for credit card junkies. For others, it may be in the 5% of your initial primary range. For some with good willpower and the willingness to eat the overhead, 20% is the max.

Facing the facts and making a commitment to a long-term plan are the two hardest goals for anyone who has entered financially turbulent waters to do. But they are only minimal action, if you want to attain your financial health and independence.

]]> http://www.fsncredit.com/getting-out-of-debt.html http://www.fsncredit.com/getting-out-of-debt.html Debt Debt Mon, 13 Aug 2007 11:00:57 -0600