You should reduce debt as your number one priority when you implement a plan to manage your personal finances.  Help is available, but you must take time to intelligently evaluate your options.

There is no lack of advertising (and sometimes browbeating) from the debt industry. Whether you are coerced into debt consolidation or debt settlement… sometimes you wind up at the short end of the stick.

Debt consolidation is when you combine your debts into a single loan, or perhaps a repayment plan. You can actually do this on your own directly with those holding your debt, or by using a counseling service.

Settling your debt is when you pay an agency to act on your behalf and try to negotiate a big reduction in the total debt. It is vital that you understand ahead of time just how this strategy will likely damage your credit.

Below you will find a simple debt reduction strategy that systematically eliminates your debt completely… and in a relatively short period of time.

The objective of the strategy is, of course, to relief you from the burden of debt.  But, equally important is that by doing so you will automatically increase your net worth… a huge improvement to your overall situation.

What you own minus what you owe is referred to as your net worth.  It’s the total difference between your assets and your liabilities.

Here’s a simple illustration:

Home Value = $400,000           Mortgage balance = $200,000
Investments = 100,000             Credit cards = 20,000
Auto = 45,000                                Auto loans = 30,000
Savings = 15,000                           Bank loan = 5,000
You Own = $560,000                 You Owe = $255,000

Net worth = $305,000

You can increase your net worth one of two ways… own more things or have less debt.

In our example, you have $255,000 of debt.  Most people pay less attention to the mortgage and car loan balances because they consider them to be rather normal in maintaining a lifestyle.

Credit card companies charge between 12 to 29 percent (forget those slick, short-lived introductory teasers) and the bank loan is probably around 6 percent.

Now, ask yourself.  Which is faster?  Create $255,000 (in other words, own more) … or reduce $255,000 of debt?

In both instances, the result is the same because your net worth will have increased by the same amount.

To make $255,000 in 15 years, you’d have to invest over $7,000 every year for 15 years and make a minimum 8 percent rate of return.

Where can you find a guaranteed rate of return this high in today’s marketplace?

No where!

On the other hand, you can reduce $255,000 of debt in only 13 and 1/2 years by adding $100 extra each month to your minimum debt payment.

Think about that for a minute.

To increase your net worth by $255,000 you have to invest over $7,000 each year for 15 years. Then, you hope and pray you’ll get no less than an 8 percent average every year.

Or… you can come up with only $100 each month to reduce 100% of your debt (to include your mortgage) in only 13.5 years — guaranteed!

Take a look at this debt reduction chart.  You will need an Adobe Reader, which is probably already installed on your computer.  If you don’t have it… go to adobe.com for a free download version.

Once you open the chart, print out a copy and lay it in front of you.  Notice how clear the instructions are to follow.  This strategy is not only simple, it is powerfully effective.

In every instance, it is faster and more reliable to eliminate your liabilities than to increase your assets.  Why?

Because the interest you pay on your debt is excessively higher than the guaranteed interest you can earn.

By following the debt chart and adding an additional $100 each month to the minimum payment requirement, you can dramatically compound the effect of your payments and expedite the complete elimination of all your debt.

It’s a lot easier to come up with $100 extra each month than it is to find over $7,000 each and every year for the next 15 years.

This debt elimination strategy works every time… every time!  It is mathematically sound and can only fail if you fail to stay the course.

Managing personal finances is not difficult, but you must first reduce… better yet eliminate… your outstanding debt.  Good luck!