There is one absolutely essential step to bringing debt under
control and that is to stop adding to it. The commitment you
make to change how you purchase the things you need, will
also change the way you live. Putting up with a few inconveniences
will be worth the end result of less debt.
Lessen Your Dependence on Credit
The biggest drag on your household budget is the interest
that gets charged onto credit accounts and loans with large
outstanding balances. Learning to pay with cash, or equivalents
like debit cards and checks, for all your purchases is a
difficult transition to make, especially if you're in the
habit of using plastic to pay for everyday expenses. Getting
this habit under control is vital to the success of getting
debt under control and should be the first step you take.
If you think you'll be tempted to go back to your old ways
of credit spending, you may want to consider putting your
credit cards in the hands of a respected family member.
If an emergency arises, your credit cards will still be
available but you would have a gatekeeper of sorts who will
keep you from impulsively buying on credit.
Put off Applying for New Loans
Home-improvement, automobile and personal loans
are only three of the many ways you can add to a freefall
into debt through more borrowing. As much as you may think
you can justify the need, now is not the time to be adding
additional repayment obligations. If you can't pay in full
for the item, you can manage without it.
Major life decisions should also be postponed until you
have your debt situation under control. For example, the
thrill of buying your first house will be offset by the
many expense that will come with home ownership - repairs,
maintenance, insurance, etc.
Draw up a Pay-off Plan
If monthly expenses exceed income, you will need
to make some changes to reverse that configuration. To spot
areas that will be the least painful to cut, write down
all your expenses for a few weeks and you will begin to
see where you may be spending frivolously. By monitoring
your spending, you may find that you automatically respond
by spending much less.
Once you can see your monthly spending pattern, you'll
need to prioritize your debt to determine what accounts
need to be dealt with first. The top of the list should
consist of any toxic debts, those accounts that you are
at risk of defaulting on and those that will do the most
damage to your credit
score, if you are delinquent in paying. Next, you'll
want to tackle credit accounts that carry the highest balance:
transportation and housing.
When you have a plan in place to pay more than the minimum
due each month, you'll be on track to lower your overall
debt. If you find it impossible to design a reasonable plan
of action, you may want to consider refinancing or a debt
consolidation service.
