Today I want to talk about the four letter word that we all hate, DEBT! Debt is the enemy of building wealth and can rob you of your financial dreams. Too many Americans find themselves unable to enjoy life because of debt problems. Today we want to take a look at a 4 step approach to eradicating debt. Follow these 4 steps and your debt free dreams can come true.

1. Organize your debts.

The toughest part about tackling debt is trying to figure out what to pay and what not to pay. Organize your debts by priority. Past due debts that are 30, 60, or 90 days late should be paid first. You want to keep these debts from getting into collections. Once a debt is in collections it has already negatively affected your credit rating. Next you want to attack all debts in collection. You can negotiate a settlement offer with collection agencies. They will often take pennies on the dollars for a past due debt.

2. Work out a payment plan.

My favorite method for tackling debt is to take a top down approach. This means paying off the debt with the highest interest rate first. After that is paid off then pay off the debt with the next highest interest rate. The goal is to avoid paying unnecessary interest payments by making extra principal payments. It doesn’t matter what the amount is, paying the highest interest rate debt off first saves you the most money.

3. Contact your creditors.

Whenever people feel overwhelmed by debt, the last thing that they want to do is contact their creditors. They avoid answering the phone or opening letters from debt collectors. This is actually one of the first things that you should do. You can keep many debts out of collections by simply talking to your creditors. Let them know that you are trying and will make the payments if they are willing to work with you. You can often negotiate a modified payment plan or get payments deferred until the end of your loan. So, take a deep breath and contact your creditors.

4. Stick to the plan.

Stay the course. Getting out of debt is a marathon and not a sprint. You didn’t get into debt overnight, so you will not get out of debt overnight. Take your time and stick to the plan. It may take a year or more but eventually you will see yours debts dwindling. Remember that every payment you make is getting you one step closer to your goal of being debt free!