5 Ways To Eliminate Debt
1) Create a Personal Balance Sheet: The purpose of a personal balance sheet is to show you your financial picture at a specific point in time. In a previous post I show how to create a personal balance sheet which is basically just a list of your assets (everything you own i.e. cash, stocks, bonds, house, etc…) and liabilities (everything you owe, credit card debt, auto loans, home mortgage, etc…). By creating a balance sheet you will create a complete list of all debt you have. Continuing from my balance sheet example in the previous post, here is example of “debts” (liabilities).
2) Identify Your Most Expensive Debts: The next step is to list your debt in order of the most expensive to the least expensive. Your credit card debt and personal loans will likely be the most expensive debt you have with interest rates well over 10% per annum. If you need a little more information on credit card debt, check out this article here by Credit Counseling Society.
3) Calculate Your Average Cost of Debt: After you have listed all of your debt and the annual interest rates you can calculate your average cost of debt. To do so simply determine the percentage of each debt relative to your total debt balance. Then multiple this percentage by the interest rate for each debt and sum them. The total is your average cost of debt in terms of an average interest rate. The spreadsheet below may help you if you are not clear on this point.
4) Reduce Your Average Cost of Debt: The next step is to reduce your average cost of debt by decreasing interest rates by as much as possible for each of the debts on your list. Clearly, it …