One of the main reasons consumers lack an emergency savings fund, which financial experts suggest should have at least three months of living expenses, is that many Americans have too much credit card debt. The money that should be shifted into a savings account often gets sent to credit card companies or to pay off other loans, leaving the household strapped for funds and forced to rely on payday loans to handle emergencies.
David Bach, author of “Debt Free for Life”, offers some pointers for consumers who find themselves in too much debt.
Debt relief tips
- Know what you owe. Bach says that many people have no idea how much they really owe because they have never actually made a list of all their debt. He says consumers should make a list including the amount owed, the minimum payment and the interest rate.
- Try the DOLP method. Bach calls his debt solutions plan “Done on Last Payment” because it focuses on the date when you can pay off each debt. Take each debt and divide it by the minimum payment; and you will find out how long it will take to pay off that debt in full. Many credit card companies now send this information with their bill, showing what payment is required to pay the debt in full within three years.
- Focus on the debt you can pay fastest. Bach says you should prioritize your debt by ranking them in order of which ones can be repaid fastest. Pay the minimum on all other debt except for debt in the number one DOLP position, and then pay as much as you can to reducing that debt first. As soon as this debt is paid in full, focus on the second DOLP debt.
- Recognize that debt relief brings emotional as well as financial satisfaction. Bach recommends focusing on paying off debt with the DOLP method rather than ranking debt by interest rate because of the motivation consumers gain when they pay off a debt completely. This motivation keeps them moving forward until they are debt free.
- Try the Equifax DebtWise.com system. For consumers who need an extra push to stay on track with their debt solutions, Bach recommends using the automated DebtWise.com system. For $14.95 per month, this system automatically pulls all your credit card debt and other loan information from your credit card, then ranks the debt for you and calculates and tracks all your payments.
Getting your finances in order to reduce debt will eventually result in less reliance on payday loans and greater stability for the future.
by Ethan Leak