In recent months, economists have predicted doom
and gloom equating that of the 1920's “great depression,” and
rightly so. Consumers are weighed down by more credit card debt, looming
foreclosures, and overdue bills every day, progressively eating away at their
savings – if they even had any. Average U.S. consumer savings is actually
in the negative. People have become too concerned with buying, and too
unconcerned with saving, hence the financial pot hole we're standing in today.
There has also been a significant lack in education on
personal finance. For example, if you didn't know paying the minimum on
your credit card every month actually doubles your debt in most cases, it would
seem like a good idea, right? Too many people just don't know how they are
getting themselves into trouble, and when or how to start digging themselves
Video: Secrets to Successful Budgeting
You Know You're In Deep When...
Generally speaking, if you
can't pay all of your credit and debts in one year (excluding your
student loans, mortgage, and auto loan), then you have too much debt. If you're
getting close, or worried that you might get in over your head, the first thing
you should do is make a budget. Yes you've heard it a million times – but
if everyone is talking about it, maybe, just maybe, budgeting is a good idea.
The keys to good budgeting are first, making the plan, then tracking expenses,
having a goal, and if you need advice, getting it.
Developing Your Debt Freedom Plan
List everything you pay each month – total amount you owe, interest
rates, bills, and other expenses. Definitely include some kind of a “just
in case” savings and a little extra for luxuries like eating out and
entertainment (you can't reasonably expect to live without a little fun here
and there), and don't forget little things like dry cleaning. Next, call your
creditors to see about lower rates, and then prioritize your debts according to
cost – pay off or move the high-interest loans first. Once you have
reached this point, go ahead with your plan so far, making sure to track every
dollar you spend and pay everything on time. Making your payments on time has
two beneficial side-effects. Not only will you get the great payment history
you need to improve your credit score so you can negotiate lower rates later
on, but it will also help avoid those pesky late fees and punitive interest
rates, helping to keep your overall debt lower today and in the long run.
Video: Solutions to the Debt Trap
Finishing Touches for Debt Freedom
Stick to your budget until it starts becoming unreasonable, or one year at most.
At that point, you should re-evaluate everything again, and refinance your
mortgage to get a better rate (you should also save some money to buy points,
since this will decrease your interest rate even further). If you ever get
stuck with any of this, just look for a non-profit credit counseling agency for
free advice on budgeting, credit repair, and
. Friendly professional help is just a phone call away!