How You Can Get Free From Stressful Debts

Everybody wants to get out of debt, but most aren’t sure about which is the best way to go about it. There are 3 things you can do to set the ball in motion and see your debt diminish.

The first step to reducing your debt is to ditch your credit cards. Yes I mean it, you will never get rid of your debt as long as you have these pesky pieces of plastic!

Credit cards increase debt, fact. The longer you have them, the higher your credit limit goes and before you know it, you can be way in over your head. The sooner you get rid of them, the quicker you will see your debt decrease.

Now take a long, hard look at your lifestyle. There is always room for improvement here and ways to stop unnecessary expenditures. We aren’t saying live like monks, but if you add up how much you spend on gadgets, nights out, meals in restaurants, etc. you will get a heck of a shock at how much you spend each month.

Doing without these fripperies will have no consequences on your health or life in general, you are just cutting out the things that you simply can’t afford but insist on doing. All this money you spend could go towards paying of credit card debts.

The last way is to get more income. You could do extra shifts or take a part item second job.

Use this extra money to pay off your debts; not to treat yourself to nights out etc. Those long hours will be wasted if you eat or drink the extra money that you have worked so hard for.

With the money you are saving by not going out and the extra hours you are working, your debt will reduce quicker than you could have imagined. Especially as you aren’t adding to it through your credit cards.

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The First Steps of Debt Reduction is Learning about Your Debt to Income Ratio

One of the main reasons why many Americans look to bankruptcy and other measures of debt reduction to clear their name from this debt is because statistically as a country we have a very high debt to income ratio; sometimes way over 50% per household. This ratio can prevent people from obtaining financing, establishing credit, and can also get you in a major bind with many of your own creditors. You can calculate this by taking the percentage of the debt you have versus how much income you bring home.

Before you can get a loan approved, your debt to income ratio must be calculated. If you DTI is too high, you are a risky borrower and may possibly have issues paying your creditors back.

Getting a loan approved involves having the lender calculate your debt to income ratio to show how much risk you are as a consumer. If you DTI is higher than the norm, this shows the company that you are high risk and may run into the problem of not being able to pay the creditors back in time.

How is the DTI determined?

Basically it’s money that is brought into the household. If your income is inconsistent from month to month, then the lender is going to want to see the last six months of averaged standard income.

Debt is the next part of the equation. Debt does not include your utility bills but it will encompass outstanding balances on credit cards, loans, mortgage, child support, car payments, etc. If a debt will be paid off within three months, then do not include it.

Lastly, take the monthly expenses and divide it by the income and you will be coming up with your DTI.

For example:

Monthly Income = $3500

Fixed Monthly Expenses = $1700

DTI = 62%

This debt to income ratio is very poor and shows that expenses are so high that it would be very difficult to gain any additional credit or financing.

The first step of debt reduction is always taking a look at where you currently stand, and that is through obtaining your debt to income ratio.

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