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 With the struggling economy, many people are finding themselves deep in credit card debt. Therefore, consumers are forced to turn to debt consolidation in order to get control of their finances. However, before a person decides to consolidate their credit card debt, they need to be aware of the credit... |
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Living with debt is by no means easy. There’s the constant concern of living paycheck to paycheck and the never ending issue of covering monthly bills and living expenses. While most of us pride ourselves on being self-sufficient, it’s hard to ignore that we all sometimes live well beyond our means.... |
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We designate these debts as “destructive” due to: 1) Extremely high rates of interest; and, 2) the depreciating or consumable nature of commodities purchased thereby. These characteristics are compelling motivations to eliminate these budgetary burdens. Following are a few tips to expeditiously extricate you from these financial strongholds forever: First and foremost, you must fully comprehend two basic facts: All debt is not bad Believe it or not, some debt is actually good for you. Consider your mortgage, for instance. A home loan unquestionably entails a huge long-term financial commitment. Nonetheless, mortgage interest is fully tax-deductible, and can be a much better investment than letting the money sit in your savings account. Most importantly, this long-term secured debt carries relatively low interest and allowed you to acquire a major asset. Over time, your overall personal net worth and long-term security will grow rapidly as a result of homeownership. In the end, mortgages are usually worthwhile monetary obligations. Even investing in a depreciating asset can sometimes be advisable. For example, getting a car loan, even with the money used to pay the monthly payment, maintain the car, and paying the car insurance and gas can still bring a net increase in earnings because of access to new employment opportunites. - Interest is your enemy High-interest consumer debts such as credit cards are your biggest fiscal health threats. Typically, interest rates hover around 18% and minimum monthly payments are a paltry 3% of the outstanding balance. Each month, half of your hard-earned funds go straight into greedy credit grantors’ corporate coffers. To add insult to injury, items purchased with credit cards are generally long gone and long-forgotten – long before you even begin to get beyond the interest and scratch the surface of the actual purchase price. Gasoline, clothes, restaurant meals, and other such consumables consume the majority of outstanding credit card balances. A famous person once said, “Forewarned is forearmed.” Armed with the above basic knowledge, you are now positioned to design an effective plan of attack to defeat the enemies: - Prioritize debt reduction efforts A popular adage alleges, “If you don’t know where you’re going, any road will take you there.” How true it is. Long-term debts with relatively low interest such as student loans and mortgages are okay. Both obligations enhance your overall economic picture in some shape, form or fashion. Thanks to tax-deductibility of relatively low interest, such debts take very small bites out of your budget. Focus scarce resources and muster reinforcements to defeat high-interest destructive consumer debt instead. Having identified your primary foes, formulate an effective game plan as follows: 1 Perform major surgery The first step for relieving pecuniary pressure is to perform some plastic surgery. Cut up every one of your credit cards and discard the pieces. 2 Close all credit accounts and ask for interest reductions on remaining debt Contact your creditors and cancel all credit cards and other revolving credit lines. Don’t leave a single destructive debt left standing. If you do, it will serve to exacerbate your already-precarious position in an adverse condition. 3 Conduct a comprehensive review of your current credit card interest Identify which of your credit cards have the lowest interest rates and highest amount of your existing debt to it. If you don’t already have such an account, apply for a credit card that carries zero percent interest. Upon receiving the card, transfer other high-interest balances to it immediately. Make fast, furious moves make your debt history during the interest-free introductory time period. Alternatively, seek a low-interest signature loan from your bank to consolidate such burdensome bills. 4 Cash is king Be a loyal subject and His Majesty will serve you royally. Pay cash for everything and stick to your budget. Negotiate discounts for large-volume and cash purchases. 5 Commit yourself to becoming debt-free Make it a fun family project. Print an amortization chart that displays the reduction of your debts. Post it conspicuously in the den, family room, or dining area. Employ historical data for visual enhancement. Hold weekly contests to see who can think of the best money-saving idea for the week. Upon its implementation, document financial progress with another chart. Bolstered by a bright color scheme and a rich reward such as a hot fudge sundae or an extra hour up beyond bedtime, the kids will gladly get in on the budgetary balancing act. 6 Do a Double-Take After paying an initial debt, double payments on the next account in line by using the payment on the prior debt and adding it to the amount you are currently paying. 7 A Terrific Trio Make triple payment on the following account by combining all payments. Continue this strategy until all debts are fully paid. You’ll be amazed at how fast this “snowballing” strategy works. |
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Credit is a useful tool and when handled responsibly allows us to obtain credit cards, loans for homes, cars and other big ticket items. The better we handle our credit, the better the terms that are offered to us from lenders including higher credit lines and lower interest rates.
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