One of the issues facing many families' finances right now is debt. The debt loan in this country is huge. And you may be experiencing it as well. If you are serious about getting out of debt, the best way to do it is to create a plan. A debt reduction plan will help you plan a way to get rid of your debt, keep more of your own money in your pocket and create space for you to prepare for the future. Here are some tips that can help you when creating a debt reduction plan:
- Change your way of thinking. Many people think of credit cards as another income source. They are considered "available" funds. Instead, view credit cards for what they are: loans. Realize that you are borrowing money, and that you will have to pay it back -- with interest. Deep down, you probably know that, but it isn't something we think about very often. Stop using your credit cards until all of your debt is paid off, your spending is under control and you can pay off the balance every single month. And even then, think twice.
- Find things to cut from your budget. Next, look at your budget. Some personal finance experts estimate that you waste between 10% and 15% of your income each month. This is waste on small, unnecessary items that you may not even think about when you are spending money on them. Things like impulse purchases made at check stands the (now PF cliché) latte in the morning. Look at your spending (maybe track it for a month or two) and weed out the unnecessary expenditures. Add up how much "extra" this is each month.
- Compile a list of your debts, interest rates and minimum balances. Make a complete list of all of your debts. You don't have to include your mortgage, but many people like to. Figure out an order for them. I like to list them from smallest to largest, since it provides motivation as you start paying them off. Others recommend starting with the higher interest rate debts, since those are the ones sapping more of your money in interest charges. (Note: If you include your mortgage on this list, it should pretty much always be last.)
- Start paying off your debts. Since you've determined how much extra you have each month after cutting out the wasteful spending, you can put that money to good use. Apply it to the first debt on your list, on top of the minimum payment. Pay only the minimum on each of your other debts. The best way for your debt reduction plan to work is for you to concentrate the power of your formerly wasted spending on paying down your debts. If you spread the money out to all of your debts, you dilute the power of an aggressive debt reduction plan. After your first debt is paid off, transfer all the money you were putting into that debt to the next debt on your list.
- Look for more ways to cut back. Saving money soon becomes a way of life. If you can find more ways to save money -- by cooking meals at home more, conserving energy, making use of the library, etc. -- you will discover that you can pay off your debt more quickly.
- Put the money into savings when your debts are paid off. The great thing about this debt reduction plan is that it helps you change your habits so that when the debt is paid off, you have all this money each month that you don't need to spend. Instead, you can use it to build an emergency fund. And once that's done, you can pad your retirement or investment accounts.
- Don't forget to enjoy life! Also, don't forget to enjoy life. If all you do is worry about your debt and putting money in savings, you won't enjoy life, and what's the point? But you should do so frugally. There are many enjoyable activities that do not cost very much. And if you want to enjoy a small pleasure every once in a while -- a new video game, a book, a nice dinner -- there's no reason not to. As long as you don't have to put it on a credit card to "afford" it.
You can apply for 0 APR balance transfer credit cards at:
http://www.creditroom.com/0-APR-on-Balance-Transfer.php
About the Author:
Miranda Marquit edits information on debt consolidation for DestroyDebt.com.
Image Source: http://greenerpastures.responsiblepersonalfinance.com
Subscribe to Everything Finance by Email
1 comments:
Great post. This is great advice to give people.
Post a Comment