Quick and Easy Guide to Managing Debt
Date Added: December 31, 2007 04:56:25 AM
Nearly all of us have come to the understanding that we have accumulated too much outstanding debt. We feel stressed because we feel we are in over our heads. Don’t despair you just need to understand that we all need to live on what we make.
The first thing that you need to do is to stop making excuses for your debt. Don’t blame others for the debt that you have accumulated rather put your energy and resources into reducing that debt and regain control of your finances.
Because of the stress that debt can cause in our lives you should talk to a friend or family member about your situation. Another option is to contact an organization that assists in dealing with reducing debt.
Then you need to come to an understanding of just how much it is that you owe. To take corrective action you need to realize how big the problem is so sit down and list your debts with the amounts to establish a number.
Understand your Budget
We may not like it, but budgeting is the most effective way of reducing debt. With a budget you will know exactly where your money is going. You can set up a plan when you know your income and subtract your expenses.
When you’re setting a budget take a honest approach about your spending. You should start up a saving account that has a minimum of three months worth of expenses in it. If you don’t have an emergency fund any unexpected costs or expenses will just drive you farther into debt. You should also budget for more than just the minimum payment amount on your credit cards. By paying more than the minimum you will decrease the principal quicker and that means less interest expenses.
Make a Plan
Now that you have a budget, you can use that to plan how you’re going to reduce your debt. Take every debt that you have and list it in order of the highest interest to the lowest interest. Now make an aggressive plan to pay off the first debt on the list while also continuing to make at least the minimum payments on the remaining. Just how much you can pay your debt down each week will depend on your budget.
A couple useful ideas may be. Use any extra income you receive such as bonuses or overtime to help you pay down debt. Pull extra money from savings to pay down your excess debt. After all the paltry interest you receive is nothing compared to the interest charges on debt. Even take up a second job or volunteer for some overtime.
Now some people may not be able to earn anymore and that means you will need to spend less so avoid eating out or buying those lattes. Set up with a cash allotment for spending money and when the cash is gone, it is gone. You can even decide to cut un-necessary expenses such as cable tv or high speed internet and make trips to the library to use their service.
Debt consolidation may be risky
While you struggle to repay your debt, you may get tempted to borrow funds to consolidate all your debts into one loan. Before you borrow make sure to thoroughly evaluate it because you may be better off paying it down bit by bit.
Do not take this approach if you don’t have the will power to not use your credit cards anymore. If you take this route make sure to destroy your credit cards and any temptation to use them again. Plus do not use money from home equity loans to pay down credit cards.
When you are purchasing a home make sure you can afford it and don’t stretch on the payment. Don’t borrow from 401k or retirement plans to repay credit cards and don’t pay hundreds of dollars for that credit repair class.
Control you credit cards
Credit cards were the most likely cause of the mess you’re in anyway so stop charging now. Cut all your cards up except for the one with the best rate and call the company and request a lower rate. Only charge on that card what you can pay in full at the end of each month. When you go shopping, leave your cards at home so you are not tempted and never sign up for credit cards to get a discount at a store.
If you’re being contacted by debt collectors
The first thing is to know what your rights are because they cannot harass or abuse you. They cannot make false representations like you may be arrested or they are with the government.
You did not get into debt overnight and will not get out overnight, but with persistence and a plan you will get out of debt over time.
