Reduction Plan Overview
Debt Analyzer consists of three primary methods to help get rid of debt. These are called Debt Reduction Schedule, Loan Consolidation and Timed Debt Elimination. Each of these terms and the methods they employ are described below.
Please note that there are two important rules that must be followed to make the plan work. They are 1. Stick to the plan and 2. Do not acquire more debt! Violations of either one of these rules will most likely invalidate the plan and require a new plan to be made.
Debt Reduction Schedule
The Debt Reduction Schedule is designed to take all current debt information and project a possible solution for eliminating the debt. The solutions generally show significant savings in interest (interest that does not go to the creditor) by following the schedule instead of merely making the same current payments.
How does it work?
Each of the debts is given a payoff priority. Every month, payments are made to each debt. Once a debt is completely paid off, the payment earmarked for the retired debt is applied towards the highest priority debt. This process accelerates repayment of the highest priority debt. Loan acceleration (early payoff of a loan) is what produces the interest savings.
To summarize -- as debts are paid off, the payments for those debts are applied to the highest priority debts that have not been repaid. Several options are available which can help accelerate and optimize the debt elimination schedule. These include using Minimum Payments, applying Extra Payments and selecting a Priority Method. Other options include Set Budget and Variable Payments.
Loan Consolidation Schedule
The Loan Consolidation Schedule is designed to take all the current debt information and combine it into a single new loan.
How does it work?
The new consolidated loan is presumed to have a lower overall interest rate than the combined existing debts. The lower interest rate makes loan consolidation so appealing -- it results in lower overall payments and less interest paid on the loan.
Credit cards typically have high interest rates associated with them while Bank or Credit Union loans usually have much lower rates. It is therefore relatively simple to take all current credit cards balances, add them up, get a new loan from a bank, and pay off the credit cards. The bank loan saves money through interest savings. The Debt Analyzer creates loan consolidation schedules and determines the amount of money that can be saved.
Several options are available to tailor the loan consolidation to specific needs. These options are made available through the loan consolidation method input field. Depending on the method selected, either enter a new monthly payment or the number of months in the new loan.
Timed Debt Elimination
The Timed Debt Elimination Schedule gathers all current debt information and projects a possible solution for eliminating the debt within a given time period.
How does it work?
Simply enter in a time period in which all debts are to be paid off. Any debt not paid off by this time frame is recalculated. A new monthly payment is determined in order to pay off the debt in the specified time frame. Note: This particular plan increases the current monthly debt payments, but saves money in interest payments by paying the debts off early.
Information about each debt is entered through the Enter Debt Information form and includes the name of the debt, minimum payment, current payment, balance, interest rate and a user specified payoff priority.