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Dave Ramsey

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The Debt Budget

The Debt Budget

No one likes the uncomfortable feeling that comes with knowing you have too much debt. How do you handle it?

First things first, sit down and fully assess your debt. What is outstanding and what is the interest rate for each debt? Write it down so that you have a visual to work with. Next, consider consolidation options. Combining all of your high-interest credit
card debt into one lower interest loan will save you in interest and reduce the number of payments you're keeping track of to one. A home equity is a good resource for this, but we recommend you learn about home equities before you go that route. Something else to consider is moving debt to a lower interest credit card.

If neither of these options works for you, then you could consider seeking help by looking at structured settlements and the like. But these kinds of tactics lower your score and ruin your creditworthiness. You may not care now, but you will when it comes time to ask for money. So, the alternative to that is to make a debt budget. There are two ways to do this: the traditional debt budget or the Snowball debt budget.

With the traditional method, you'll order your debts from highest interest rate to lowest. You will make the minimum payments only on all of the cards except the one with the highest interest. That card you'll pay as much as you can on every month until it's paid in full. Then move on to the next card. With the snowball method, you'll order your debt from smallest amount to
largest amount (interest is not a factor here). You'll pay the minimum amount on all of your larger debts and apply the most every month to the smallest debt until paid off. Then move to the next debt. This costs more in the long run, but you tend to see results quicker which can be a huge motivator for staying on target!

Which of these methods is more appealing to you?

Posted: 5/16/08