Pay Off Debt

For those that would like to pay of the debt as opposed to settling or filing bankruptcy, I would follow the advice of Financial guru Dave Ramsey. With his debt payoff plan, you will start off with creating a "rainy day" fund. Start off by paying just the minimum on your credit cards, and start saving money until you have about $1500-$5000 saved up. The amount you would like to save up is up to you.

Once you accomplished your goal of saving up for a rainy day, it's time to start tackling your debt. Organize all your debts starting with the smallest balance to the largest. For most households, one's credit cards will be the smallest debts and the mortgage will be the largest. Continue making minimum payments on all the debt except the smallest. On your smallest debt, agressively pay off as much as possible until it is completely paid off. After paying off the smallest debt, move on to the next smallest until all of your debt is paid off. If it will help you to get motivated, give yourself a reward each time a new debt is paid off. Maybe a nice dinner at your favorite restraunt, a nice shirt, a video game, or a nice vacation. Think of it as gold at the end of a rainbow.

Now, some people will say that this isn't the best way to pay off the debt. The fastest way to pay off the debt is to start paying off the highest interest rate credit card first. Well, that is mathematically correct. However, we are not dealing with math here. We are dealing with human habits and emotions. The problem with this line of thinking is that it is hard for people continue paying off their debts with out seeing results. If you start off tackling the smallest debt first, it is much easier to achieve that first milestone. It feels good to take care of the debt and want to continue. Once that happens, it's like a snowball effect and the debt just starts melting away.

In general, this is just very good financial advice. Slowly get yourself out of debt and start building wealth. Just imagine what you can do with the spare disposable income.