Managing Debt
We all have borrowed too much money at some point in our lives. That is why we need help managing debt. It's never too late to start getting out of debt. But the sooner we learn to live on what we earn, the better our financial outlook becomes.
The trick is to face reality. No more excuses. It's not the credit card companies fault, it's not your parents fault and it's not the mortgage companies fault. It's our fault. We spent more and borrowed more than we earned.
Is it time to get rid of some stress in your life? Debt equals stress! If the debt is out of control the best thing to do is ask for help. Start with a nonprofit such the National Foundation for Credit Counseling.
This will help to get a grip on how big a problem you really have with debt. You have to sit down and figure out how much you owe and how large your debt load is. Getting that number is your first step to getting out of debt.
Manage Debt With A Budget
Nobody likes the "B" word. But a budget is required so you know where your money goes every month. Setting up a budget is not hard. Following a budget is. The first thing to do when setting up a budget is to add up all income and subtract all expenses. Then set up a plan. That is what a budget is. A plan of how to spend money.
Budget more than the minimum on all credit card payments. This is the only way to start reducing credit card debt. Stop charging anything on credit cards. It doesn't do any good to pay more than the minimum if you keep charging more debt.
Start an emergency fund. This is very important to help prevent adding more debt. This allows a cushion to cover unexpected expenses or loss of income.
There are two ways to list debts. You can list debts from the highest-rate to the lowest-rate balances. Or you can list debts from the lowest balance to the highest balances regardless of the interest rates. Paying off the lowest balance allows some to feel as if they are finally accomplishing debt reduction. Once that payment is eliminated, put that money toward paying off the next debt. This is what Dave Ramsey calls the debt snowball plan.
The monthly budget will be your guide for how much money can be devoted to paying down debt balances every month.
Debt Reduction Strategy
If you already have a lot in savings, consider using some of it to pay down debt. You pay a lot higher interest rate on your credit card than you earn in a savings account. Leave enough in your savings account to cover three to six months living expenses.
Use any bonuses, extra paychecks or tax refunds to pay down debt. You may also want to consider working overtime or getting a second job to help reduce your debt.
Never borrow from your 401K to pay off debt. Do not use a home-equity loan to pay off credit card debt.
Cut up all credit cards and stop charging anything no matter what.
When you go shopping, take a list and go cash only. If you can't afford to pay for it, don't buy it.
