How to Figure Out How Much Debt You Really Have

In my years of helping people become debt-free, I've discovered that many people stay in debt a longer time than necessary because they don't know how to accurately figure just how bad their debt load has become. Here are some of the strategies I suggest to help them.

Make a 'Debt Notebook' ~
Make yourself a notebook with charts, so that you can always see exactly how much you owe, and to who. You can get fancy and make your self a computerized spreadsheet, or you can make it as simple as a sheet of notebook paper. Whatever works for you is fine.

You should have columns labeled to show the name of each creditor and the details about that debt, such as what interest rate you are paying. Give each creditor their own page, and label your columns as 'amount owed', 'date paid', 'amount paid', and 'amount still due'. Each time you make a payment, record a new line on that creditor's page, updating all the columns.

Keep all your pages together in a binder, and have a specific place to keep it so it doesn't get lost. Make sure to schedule at least one day each month to sit down with your binder and check your progress.

Make Debt Priorities ~
Not all debts are equally important. Non-payment of some things have more serious consequences than others. An unpaid utility bill could mean a shut-off of essential services. But a ten year old student loan bill can probably wait a few extra days or weeks. If you don't have enough money to pay everything, be sure you pay towards the things that matter most, first.

Rank Debt By Interest Rates ~
Your highest interest debts are getting worse faster than your lower interest debt are. Any time you have an opportunity to put a little extra payment towards your debt, you should pay it to the debt with the highest interest rate. You'll get the most for your money there, because you're escaping the interest at the highest rate, instead of one of your lower ones. (Check your 'Debt Notebook' to see which ones are your highest interest debts!)

If you don't know your interest rates, then your first task needs to be to contact each of your creditors and find out. Keep in mind that many credit companies change your interest rate once you become delinquent on your payments with them. Your interest rate may be much higher than you think.

Find Your Smallest Debt First ~
If the interest rates are the same on two debts, you should concentrate on paying off the smaller debt first. Having one account at zero is more beneficial than having two equally delinquent debts. Keeping you Debt Notebook will let you see right away which debts are closer to being paid off, so that you know where to concentrate your efforts.

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