M is for Money

How much debt do you have? What types of debt, credit cards or student loans, payday or personal loans? What is the interest rate on each? We are on a mission to eliminate that debt, so what are we fighting? Rule number one of war, know your enemy.

I’ll go first. At my breaking point I had 5 major debts:

• $20,500 on credit card
• $1,800 to Thomasville furniture
• $5,500 student loan
• $28,000 car loan
• $340,000 mortgage

That’s a sobering amount of debt, in fact the total minimum payment for all that debt is nearly $3000 a month. Focusing on monthly payments is one way people hide from their debt problem. It didn’t work in my case, my minimum payments alone were more than most people make in a month. Now it is your turn.

Making a List

You need to gather information on each debt that you have, use monthly statements or check online to see your current balance, interest rate, minimum payment and due date. Create a table or spreadsheet with this information, here is an example using my own debt:
How much is your total minimum monthly payment? How high are your interest rates? Don’t allow the amount of debt to discourage you. We are going to use the information you are gathering here to formulate a plan of attack.

Checking it Twice

Are you sure you’ve listed all your accounts? There may be debts you’ve forgotten or which have gone to collections. An easy way to see all your open accounts and approximate balances is to check your credit report. You can get a free copy of your report from annualcreditreport.com. This is the official site mandated by the government, avoid sites like freecreditreport.com. Those sites require you sign up for a “free trial” of some sort, when you forget to cancel on time they charge you. I speak from experience on that one.

There are three main credit bureaus (TransUnion, Experian, and Equifax) and all have substantially the same information. Go to annualcreditreport.com and just choose one bureau’s report this time, you can access each bureau’s report once a year. Later in the year you’ll come back and check the report from another agency as a way to monitor your progress.

How clean is your credit report? Do you have late payments, accounts in collections? Are there any errors? Your credit and debt are related. Errors should be dealt with immediately, here is some info on how to dispute errors on your credit report. If you have missed payments, late payments, or accounts in collections, your credit is damaged and you are paying for it with higher interest rates. Accounts in collections need to be included in your table of debts and dealt with as soon as possible. Set up a system to pay your bills on time, if you’re using snail mail make sure to send the payment in at least a week in advance. Little slip-ups like forgetting to pay a bill cost big money.

Preparing for Battle

The battle lines are drawn, in this step we’ve laid out how much debt you need to destroy. We’ve gathered crucial information that you will use in your plan of attack. At this point, you can’t deny how much debt you have and you’ve committed to erasing it. There is just one last task in this step - don’t add to your debt problem.

The Debt Stops Here

This is Part 2 in Deliverance from Debt, for Part 1

Part 3: Where Did the Money Go?