Create your own ultimate debt elimination plan.

Create your own ultimate debt elimination plan.

The method is simple.

l Set a monthly amount.

l Pay all minimum amounts.

l Pay extra toward the debt with the highest interest rate.

This method will ensure that you pay the least amount of interest and repay your debts as soon as possible.

The trick to paying the least amount of interest possible is to pay extra money toward the debt with the highest interest rate. Obviously you want that debt paid off as soon as you can because each month it costs you the most.

The trick to paying off your debts in the shortest time is to set a fixed total amount to pay each month.

The trap many people fall into is that they only pay the minimum, which is designed to keep you paying a high interest rate for as long as possible.

By paying a fixed total amount monthly, as one debt is paid off, you will have more money to pay towards another debt.

First, determine your ability to pay. If your total payments are much more than you can afford, contact the national credit regulator's debt counsellors or credit ombudsman.

You will find them in your local phone directory or online.

Avoid further debt and more problems by staying away from unregistered money lenders.

Next, you need to make a commitment to stop getting further into debt.

Cut up your credit cards or put them where you cannot easily get them. If you are living a lifestyle that depends on credit, you will soon dig a hole you cannot easily climb out of.

Stop spending more than you make each month and do not count on future bonuses, inheritances, refunds or other nondependable income to bail you out.

If you make R8000 a month, spend less than R8000 a month. Look for ways to cut back and purchases you can postpone or do without.

Now, let's look at each step of your ultimate debt reduction plan more closely.

First, determine how much you can afford to pay each month toward your debts. It should at least be the total of all your minimum payments for the current month.

You might have to examine your spending for the last several months. Find things you can eliminate or do without for a while. Postpone purchases, cancel subscriptions. Anything to free up more money to pay off your debts.

You might even want to postpone investing for a while. Are your investments beating what you are paying on your credit card?

If not, a better investment would be to repay your debts.

Once you have your monthly debt repayment amount set you need to write down each monthly debt you are paying.

Record the creditor's name, current balance and interest rate. Then take a separate sheet of paper and reorder the debts so that the debt with the highest interest rate is at the top.

Now as each monthly account comes in, pay the minimum payment. Subtract the minimum payment amount from your set monthly total. After all the accounts are paid for the month, take any extra money left over and make another payment on the debt at the top of your list.

You can make an additional payment this month or save the money to add to next month's account. But don't spend it!

As each debt is repaid, cross it off your list, but keep paying the total monthly amount you set at the beginning.

This will accelerate your debt repayment and save you hundreds or even thousands of rands in interest charges.

The two keys to your ultimate debt elimination plan are to stop getting further into debt and to set your monthly debt repayment amount.

The rest is easy. You will be debt free before you know it! -