Stop The Debt Addiction

Category: Finance, Financial Planning.

Snowballing consumer spending has resulted in more families than ever drowning in debt.

According to a recent USA Today article about debt, 78 percent of baby boomer s have mortgage debt, 59 percent have credit card debt, 56 percent have car payments. Consumer debt has now exceeded$ 2 trillion, reports the Federal Reserve Board and this figure is growing by the minute. So if you re losing the battle to keep up with the cost of living and are tempted with the abundance of easy credit than bear this thought in mind, three out of five American families can t pay off their credit cards each month. Living debt- free is about more than getting creditors off your back, it s about getting your financial life back. More. So here are 7 steps to get yourself out of debt: Be honest about your current debt situation. If you have bills unopened gathering dust in a drawer somewhere or you are starting to hide from your creditors then it s about time you got real.

You can t change what you don t acknowledge. The first step is to get a full picture of your current debt situation. In the second column write out the minimum payments you are required to make towards the debt. Begin by starting a spreadsheet file and in the first column take account of all your current outstanding debt from credit cards, personal loans to, store cards car loans. The third column you will note the interest you are being charged and in the final column write down the current total outstanding balance owing on the debt. The Consumer Credit Counselling Service( CCCS) warns that if your debt repayments take more than 20% of your net monthly income you are entering a danger zone and must take steps to cut back.

Now you have an idea about how much you owe, who you owe it to and how much your repayments are each month. Stop the debt addiction. Like they say if you re in a hole, the first step is to stop digging. You ve got yourself into debt and there is little point trying to get yourself out of it if you are going to add to the burden. Give yourself a chance to succeed and consider cutting up your credit and store cards so they don t pose a temptation, you can always order a replacement card once your debt situation has improved. It wasn t that many generations ago that our ancestors learnt the value of saving for something important. In the meantime pay cash for everything.

Get your spending under control. While it may not be the most exciting thing to do and trying to stick to a budget may prove even less exciting just think about the amazing feeling you ll get when you finally get yourself out of debt. If you are like most people the thought of doing your budget is akin to watching grass grow. So if you re ready to forgo short term pain for long term gain then get your trusty spreadsheet out again and list in the first row your total monthly income. Now you have an idea of your financial situation after you have taken your expenses into account. In the rows below list all your fixed monthly expenses which include your monthly debt repayments and then below that, list all your variable expenses. If the expenses are greater than the income, you ll need to make adjustments until the expenses are equal to or less than the income.

Here is where the fun begins. Start tackling the debt. If you focus on your total debt problem then it might seem like an impossible situation but if you just focus on one debt at a time then it becomes manageable. The idea is that you want to pay beyond the minimum amount so that the smallest debt balance gets paid off faster. From your spreadsheet that lists your debts, pick out the one with the smallest outstanding balance and dedicate all extra funds left over at the end of each month to tackling this debt until it s fully paid off. While some will argue that you should be paying off the debt with the highest interest rate, from a motivational point of view there is a great psychological victory when you start seeing debt balances being wiped away from your spreadsheet. The challenge each month is to find ways to cut down your variable expenses so that you can allocate more funds to the debt you are focusing on eliminating.

As each debt gets paid off in full then you allocate all your extra funds left over at the end of the month to the next smallest debt. Grow your income. There are many great ideas to grow your income and you may want to sit down and brainstorm them. Now that you have started eliminating your debt and controlling your expenses its time to think about how you can grow your income to make your debt reduction plan go quicker. You ll be able to come up with a few creative ideas. You could even sell some of the things that have caused you to be in debt in order to raise some money to pay them off. Some things to consider are whether you can increase overtime at your place of employment, are there opportunities to get a part time job or maybe start something online like an eBay business.

Don t give up. It probably took years of bad spending habits to get yourself where you are today so be patient and disciplined with your debt reduction plan. Rome wasn t built in a day and so don t expect that your debt situation is going to be dealt with in a day. Focus on eliminating one debt at a time. While these sound like an easy way out they can cost you more in the long term. Things to avoid are traps like consolidation loans and drawing down on your home equity.

They also don t enable you to face the cause of your problem head on and therefore chances are you ll be back to being in debt before you know it. Celebrate your successes. Just remember quick fixes don t last. The key to keeping you motivated on your debt reduction plan is to give yourself opportunities to celebrate your successes along the way. Be careful not to blow your great progress by setting yourself back financially. When you are able to eliminate one of your debts from your list treat yourself to something fun. You can celebrate and do something fun without it costing you a lot of money.

Make this into a fun game where your rewards are available to you for making progress.