Debts: Tips for Regaining Control of Personal Finance
Debts: Tips for Regaining Control of Personal Finance
These days, debts seem to be the hot topic of conversation. Everyone is concerned about government debts. Business owners are working on finding solutions to reduce debts. Consumers are trying to figure out how to eliminate debts. One thing is certain; debt has reached epidemic proportions worldwide.
Debts have a way of quietly accumulating. The average middle-class American carries a mortgage loan, one or more automobile loans, credit card debt and student loans. When people have more month than money they turn to credit cards or home equity loans to make up the difference. Before long, outstanding debts wipe out savings account funds and often force people into bankruptcy.
According to a report published at MSN Money, Americans owe more than $2 trillion in creditor debt. That amount does not include outstanding home mortgage loans. U.S. consumer debt equates to approximately $20,000 per citizen. While we can't fix government or corporate debts, we can regain control of personal finance by making a few simple changes.
A large part of America's debt problem is consumers rely too heavily on credit. Most people have five or more credit cards with varying limits. They use credit cards to pay for everything from morning lattes to lavish vacations.
When credit card statements arrive, many Americans pay the minimum amount due. As each month goes by interest is assessed and continuously increases outstanding debt. Interest, late fees, and over-the-limit charges can add up to hundreds of dollars in additional debt each year.
Individuals who are tired of being indentured to credit card companies and financial institutions must become proactive and develop get-out-of-debt strategies. The first step involves thorough review of personal finance. When expenses are higher than income it is time to develop a household budget and stop wasteful spending.
Most people are unaware of how much money is wasted. They complain of not having enough money, but purchase things they really don't need. One simple, yet effective way to find out where your money goes is to track daily expenses for 30 days. Chances are you will be surprised to discover how much those nickel-and-dime expenses and impulse buys are eating up your budget.
Several options exist for helping consumers pay off debts and start saving for their future. The easiest way is through budgeting. While budgeting requires self-discipline it does not cost a dime and you don't have to share private financial information with complete strangers to accomplish goals. In a nutshell, budgeting requires spending less than you earn.
Those unable to stick to their budget may require professional credit counseling. Depending on your finances, you might be able to obtain counseling at no-cost. Several non-profit credit counseling agencies use a sliding scale to determine how much consumers can afford. The Department of Justice offers a nationwide list of credit counselors and debt education programs via their website at Justice.gov.
Homeowners carrying large levels of debts might consider obtaining a debt consolidation loan. Borrowers take out a second mortgage using home equity as collateral. Obtained funds are used to pay off high interest loans and unsecured debt such as credit cards and personal loans.
Debt consolidation loans are a little more challenging to obtain than in the past. Borrowers must have sufficient home equity, FICO score over 720, and a solid credit history. Debt consolidation loans can help borrowers pay off high cost loans, but can also place real estate at risk for foreclosure.
Individuals drowning in debts should take time to conduct research about various debt reduction options. Debt settlement and bankruptcy should be considered as a last resort because they cause serious harm to credit scores and remain on credit reports for up to 10 years.
Instead of seeing debt reduction as an overwhelming challenge, think of it as a money game. Find ways to reduce spending such as buying in bulk, shopping at yard sales or thrift shops, or clipping coupons. Then use the savings to pay off debts.
With patience and practice you can become the master of your money game. By eradicating debts now, you can secure your future and ensure you can live comfortably when it is time to retire.
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