Wow….. Just read a really long article, “Debt Free In Under 10 Years”. But it worth to finish reading this article because I learn a lot about debt management from this article. Anyway to save your time, and also as a record for me, I will draw out the main point and post it here. If you want to read the original articles, you can check it here and the author for the article is Jeffery.

First part - introduction
In this part, nothing else but an introduction to the topics and credit card debts. However, the main point here is you can check whether your credit card is your liability or a tool that help you in emergency condition.

“There are a few questions you can ask yourself regarding your current credit card use to determine if you are creating a credit card debt problem. Do you have outstanding monthly balances on more than one credit card? Do you only make the minimum monthly payment on your credit card? Have you had debt on your credit card for more than three consecutive months? If you answer “Yes” to any of these questions, then your credit card is probably more of a liability to your financial well being than an asset and, you should consider a plan to reduce your debt. “

Second part - No Magic cures: What’s Your Reason?
Here, the reason that makes you have the intention to cut down the debt is mainly discussed here. But what I want you to pay attention is, the author is giving a great idea that if you want to get rid of your debts, you should change your current lifestyle and in reality, your current lifestyle is the main reason you go into debts.

“If you are reading this article thinking that it would be nice to get rid of all your debt as long as you can keep your current lifestyle, you are in for some hard reality. The reason you have your debt is because of your current lifestyle! If you aren’t willing to change, then it’s not worth your time continuing with this article. How hard this change will be depends heavily on how committed you are to getting out of debt. Those that are committed will find that the plan is actually quite simple, much more so than you probably imagine, and you’ll wonder why you didn’t take the time to implement it long before. Those who aren’t fully committed to wipe out all their debt, or are searching for an easy way out, will find the steps much more difficult if not impossible. “

Third part - The Dreaded ‘B’ Word

At first, I really cannot guess what is the ‘B’ means. However when I read through, and I say “oh” again the ‘B’ here is stand for ‘Budget’. Again budget is another way to control your debt.

Below is the benefits of ‘Budget’ that mentioned in the article:

1. Knowing your current financial status
2. Keep track where all your income is currently going
3. Knowing your small expenses that you overlook but bringing you the debts.

So after knowing your problems, now is time to change your spending habits. The author suggested that:

1. Rebalance your inflow and outflow
2. Reserve another 10% of your income to pay off your debts

Fourth part - Consolidate & Destroy

Now is time to take action. Your first goal is trying your best to consolidate all your current credit card debts into as few as possible. So below is the suggestion from the article:

1. Call your local credit card companies and ask them to lower the rate.
2. take advantage of the promotional offers from other banks.

“If you find that the interest rates being offered by the credit cards you possess are all in the 18% + interest rate range, it’s time to make a call to each of your credit card companies and ask them if they will be willing to lower the rate. A polite explanation that you will transfer the entire balance to a competing credit card and close your existing account if you can’t receive a better rate should help in the negotiating.

Another option is to take advantage of the promotional offers that many banks use to attract new customers. They will offer a low introductory interest rate (sometime as low as 0%) for a set number of months if you transfer your credit card balance to their card. The issue to be careful about is knowing what the credit card interest rate jumps to once the introductory rate ends. If that rate is still lower than your current credit card rates, then this option is probably well worth while. (NOTE: credit card companies have caught onto people who simply jump from credit card to credit card once the introductory rate ends. To combat this, many have written into the offers that if the balance is moved again to another card within a certain period - usually 12 months - the normal, higher interest rate will be retroactively applied to all outstanding balances).”

Fifth part - Guerrilla Debt Reduction
I think this probably the most important part of the article. The author is sharing his way to control the debt and it is called “Guerrilla Debt Reduction”

To simply the explanation, the author give an example situation in his article,

“This example is purely figurative to show the concept of how the guerrilla debt reduction plan works. After consolidating all his debt, Dave has 3 credit cards left with balances of $1,000, $2,000 and $3,000, a car payment ($250), and a house payment ($750). His income comes to $2,500 a month after taxes. There is the guerrilla way to pay off all these debts within 10 years:

He should make the minimum payment on each of his debts and then add the $250 (10% of $2,500 take home pay) to the highest interest credit card payment. For the first 4 months he’ll be paying $270 toward credit card A, $40 toward credit card B, $60 toward credit card C, $250 toward the car payment and $750 to the house payment at which point credit card A will be paid off. Once this has been accomplished, the payment that was being made toward credit card A will be applied to credit card B. Therefore for the next 7 months he will be paying $310 ($270 + $40) toward credit card B, $60 toward credit card C, $250 toward the car payment and $750 to the house payment at which point credit card B will be paid off. “

Sixth part - Home Sweet Home
Another great part of the article, pay down your high interest credit card debts with home loan. Below is the explanation :

“There is an effective way to consolidate all your outstanding high interest debts into one single debt with an attractive interest rate if you own a home with equity that has accumulated over the years. You can accomplish this by securing a home equity line of credit. Basically you are using the equity you have built up in your home to secure a bank loan which you can then use to pay off your other debt.

The home equity line of credit offers an extremely attractive situation in paying off your other debts. First, the interest rates on these loans are usually well below the rates charged by credit cards making an immediate savings on the interest charges. All your non secured (credit cards, car loan, student loan etc.) debt can be consolidated into a single payment with an interest rate charge in the single digits. In addition, the interest you pay on the home equity line of credit is, in most cases, deductible on your taxes effectively making the interest rate a couple of points less than what is written.”

Seventh part - More Consolidation Options
Further explanation on more idea to consolidate your debt.

1. Borrow against the life insurance policy
2. Borrow from 401K Plan
3. Borrow from family and friends

“Another option is to borrow from your 401K plan if you have one. Most 401K plans allow you to borrow the lesser of 50% of your account’s value or $50,000. Interest rates are usually well below credit card interest rates and, even beter, the interest you pay back on the loan is to yourself and goes directly into your 401K account. There are, however, some issues of which you need to be aware. The loan needs to be paid in less than 5 years which should not be a problem if you can follow the guerrilla debt reduction plan. The area that you must be extremely careful about, and sometimes have little control over, is that if you leave your employment before full repayment, any outstanding balance must be repaid immediately. If you can’t, that money will be taxed as income by the IRS and a 10% tax penalty will be levied if you are not 59.5 years of age for early withdrawl froma retirement plan.”

Huh… Finally I finished the reviews. Anyway, this article really an eye-opening to me. There are a lot of practical steps to consolidate your debts shared in this article. What I did here is just share some my opinions and summary of the article, and if you found that the tips are OK and great, all the credit is going to the author.

Source : http://www.savingadvice.com/forums/showthread.php?t=29

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