How to Reduce Your Debt

As mentioned in the Article Debt: The Good, the Bad and the Ugly, consumers themselves must be very concerned about their spending and borrowing. They should be aware of the risks involved with rising interest rates, extended periods of financing, using your home as a piggy bank and maxed out balances when obtaining real estate mortgages, car loans and leases, lines of credit (LOC’s) and credit cards.

The Solution to Personal Debt

The solution is obvious and simple, but it is not easy for some. For those who have not yet reached that critical mass, where there seems to be no way out of debt except perhaps bankruptcy, immediate action and a change in attitude is essential to avoid the inevitable. The goal is to reduce your debt. Ideally everyone’s debt to income ratio should be no greater than 100 % which means your household owes $100.00 for every $100.00 of disposable income. Since this may not be realistic in today’s society our goal must therefore be to reduce or maintain our debt at a level that is sustainable so that we are living within our means. Make every financial decision with that goal in mind.
The main pillar of every financial plan is a monthly budget where you list your income and your expenses and the two must be balanced. Although despised by many, this simple tool can be the beginning of your journey to financial contentment. The next thing is to stick to that budget, no matter what. That is where the change in attitude comes in. You must be determined to resist all future temptations to buy products and services that you want but do not need and wait as long as possible before purchasing products that you do need so that you are in an improved financial position.

Here Are Some useful Tips to Help You Get Out of Debt:

1. Select one or two credit cards that you will use for all your future needs and as soon as possible pay off and cancel all others. Do not apply for any new ones in the future.

2. Do not use a credit card just because you are accumulating reward miles! Many such credit card users pay dearly for these rewards in fees and interest.

3. Do not use credit for monthly staples such as groceries and utilities unless you are disciplined enough to pay the balance off monthly with no interest.

4. Consolidating all your debts into one loan may be a solution for some if necessary but if you choose this option DO NOT reopen the paid off accounts again.

5. Do not use your home as a piggy bank. If you have some equity in your home, keep it there. After all you may want to retire some day and this equity may help in that regard.

6. If you are the “keep up with the Jones’s” type, stop it now. No one else really cares and such a priority can be unbelievably costly.

7. If you have a LOC, use it wisely. Don’t make purchases just because you have credit available on your limit. If you don’t need it don’t buy it. When you have solved your financial debt problems then you can treat yourself.

8. Make each purchase on credit as if you were paying cash, because you do have to pay it back! If you adopt that attitude then you will choose your product or service much more carefully with less influence from the salesperson.

9. Finally, use common sense. Ask yourself questions such as Do I really need the latest version of my favorite electronic gadget as soon as it is available, regardless of the cost? Do I really need a new car every 3 or 4 years? Such “needs” can cause you to struggle financially for the rest of your life.

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One comment to How to Reduce Your Debt

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