Today, we have a contribution from Jason at WorkSaveLive.
Debt is something most of us have in one degree or another. The wise use of credit and debt can help further your financial goals, however the problem is too much debt hampers your ability to conduct your financial affairs in a stress free manner as well as building wealth to the extent most of us desire.
If you have medical, credit card, or large amount of student loan debt, then your goal must be to get your debt under control.
In order to do that, you must implement effective budgeting strategies that assist you on the road to financial health. Below are a few tips to help you start aggressively tackling debt:
1. Use Credit Cards Wisely
You want to use credit cards – somewhat – to build a credit history. Before just signing up for any card though, investigate the options available from a host of issuing companies. Choose one with very competitive rates. In addition, pay it off each month to avoid incurring interest charges. Moreover, don’t overdo charging goods and services to that card; particularly, it’s best if you ONLY charge things that you have the money to pay for.
2. Consolidate Your Debts
Is debt consolidation a good idea? It can be but it depends on the person and how you set up the debt consolidation. You can work with a company that will negotiate lower interest rates (and possibly lower payments) with your creditors; additionally, they’ll “consolidate” all of your payments so that you pay this consolidation company a single lump-sum each month and they’re responsible for paying your creditors individually from there. Other debt consolidation strategies are questionable at best and it’s always wise to weigh the pros and cons before embarking on such options.
3. Have a Spending Budget
You can tackle debt by knowing how much you have to spend each month and not spending beyond that amount. Consult with family and friends who’ve implemented successful household budgets. Do research online for top budgeting strategies. Finally, set a monthly limit in various categories, such as groceries, clothing, entertainment and such and commit to the amounts you set for each category.
4. Research Repayment Options
Contact your creditors and discuss your financial situation with them. Work out repayment options with them that are more favorable than your current repayment obligations. Some reputable creditors often work with their clients to address their money concerns and they may be willing to help you formulate better payment options that both parties can live with each month.
5. Consider Selling Some of Your Assets
You may have some non-essential assets around that you’re no longer using. If they’re in decent shape, consider selling them to obtain cash. Likewise, you can sell an expensive asset you do need and replace it with a lower-cost asset if it will do the same job effectively for you. The difference in price that you gain can be used to pay down debt.
6. Consider Extra Income Earning Opportunities
You may need to take on a part-time job, in addition to your current job, to bring in extra income. Alternatively, you can consider a home-based business that can bring in additional income. While this can tax your time and energy, it may be necessary for a while.
Whatever you decide, tackling debt does involve sacrifice. Therefore, you may have to sacrifice some leisure time to bring in the cash you need to get your financial situation under control.
7. Get Back to Basics
Debt reduction strategies also include doing away with sometimes extravagant, luxury spending. Are you dining out quite frequently in finer, non-fast food restaurants? These types of restaurant meals and the accompanying tips can erode your monthly cash resources. Get back to basics by doing more baking and cooking at home. It’s typically less costly – and healthier!
Don’t let debt woes play havoc with your life. You can de-stress by putting in place a program to reduce your debt load systematically. Tackling debt is your route to a life free from the worrisome burden of spending more than you’re taking in each month.
Jason is the creator of the free How to Become Rich e-course, and the founder of WorkSaveLive where he educates his readers on how to save money, pay down debt, and build wealth.
Using credit cards wisely is a good tip. You need to build credit and prudent use of a credit card is a good way to help do that. But don’t just get any credit card. Make sure you get one that at least gives you points or cash back! Personally I’m a little skeptical on debt consolidation, if someone dint have the discipline to stay out of debt in teh first place, debt consolidation can lead to a debt consolidation loans and a bunch of credit card debt down the road. Before someone uses debt consolidation to tackle their debt problems they have to have the resolve and discipline to put up the credit cards!
In regards to debt consolidation, it really depends on which type you sign up for. The debt consolidation that I suggest (and the only one that works well) is when you use a company to lower your monthly payments (by reducing your interest rates) and you pay them a single monthly payment (consolidating) and they are responsible for paying out to each of your creditors. When you’re in these programs you’re not allowed to take on any more unsecured lines of credit, so the chance you go further in debt is quite small.
We are working on lowering our expenses such as food, and increasing our income as much as we can!
The other thing that’s great about #5 selling your assets is that not only do you get some dough, you also have one less thing to take care of at home. I sell tools I don’t use anymore, and it’s great that I also don’t have to watch over them anymore, take care of them, or use up space to hold them. It’s pretty sweet.
I’m a huge believer that everything revolves around budgeting. Without a budget you’re doomed. It also helps if you do your research ahead and select the best financial products that fit your needs. For example, I don’t chase rewards, but like having low interest rate credit-cards.
Great post Jason, but RE #4: Here’s my experience. Regardless of how crappy my fiances have been I always paid my credit cards/loans. I tried to call and negotiate with them about our situation especially after I went off work but not one of them were willing to work with us. Why would they? I was making payments even under extremely stressful financial situations. I believe they’re almost never willing to ‘talk’ until the payments stop for a few months and they begin to realize the bad situation you’re in. Until the face the possibility of the worst- bankruptcy, rarely has anyone been willing to play ball… for my personal situation or friends/family who I know.
I agree with most of it apart from selling assets, assets are something you should hold onto, so sell liabilities not assets!
I’m a big fan of extra income…it helps make up for a lot and usually takes time. That means less time to spend money, lol. It ended up working out for me at least…
My biggest tip for debt reduction is “be a minimalist” or “be cheap as heck”. Want less, do less. Heck, I only upgrade laptops once every 5 years. Same thing goes for cell phone. Eat cheap using a crock pot and bike to work.
Debt reduction isn’t hard. Controlling consumer impulse is.