What Is a Debt Elimination Plan?
A debt elimination plan is a set of steps that a borrower must complete to get out of debt. The plan can be formulated by a financial adviser or by the borrower himself.
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Significance
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When a borrower has debt that keeps him from having extra funds at the end of the month, he needs to look at ways to pay off that debt. A debt elimination plan will do just that.
Function
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A debt elimination plan gives the borrower a set of predetermined steps to pay off his debt in full. It usually starts with building up savings and then tackling the debt.
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Types
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There are a number of ways to pay off debt, from paying the smallest debt to the largest, to tackling the debt with the highest interest rate first.
Considerations
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The type of debt elimination plan a borrower chooses should be based upon her specific needs. What works for one borrower may not work for another.
Misconceptions
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Many borrowers assume that tackling debt first is more important than building savings; however, the savings will prevent the borrower from needing debt again.
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References
- Photo Credit Image by Flickr.com, courtesy of Andres Rueda
