There’s nothing inherently wrong with debt. Even the world’s most profitable companies can owe billions of dollars. Debt becomes a problem when you don’t have the cash flow to manage it effectively, or use it to your advantage.http://finance.yahoo.com/news/debt-130019053.html
For instance, with a zero percent finance rate on a car loan or a computer, responsible consumers can actually save money by borrowing. You don’t pay a penny more than the sales price (plus taxes), and you can spread a large purchase over many months or years.
As too many people discover, however, debt can easily snowball, feeding on itself to the point where you have to borrow more just to pay down what you owe. If this scenario sounds all too familiar, you may be among the 46 percent of Americans who carry credit card debt from month to month — and needlessly pay hundreds or thousands of dollars in interest over a year’s time.
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It’s important to have a plan for managing and paying off debt. This week I want to discuss a basic 1-2-3 plan to tackle and stay out of debt.
1) Start with a budget. Yes, the dreaded budget. Most people don’t realize they can get out of debt with nothing more than what they take home every month. But they can’t do it without a budget.
You may have a good idea what you take home each month, but do you truly understand where it goes? You can’t change spending habits without knowing what and where to change! Starting this month, keep a detailed account of every penny you spend. Figure out your mandatories (mortgage/rent, car payments, utilities, etc.), and then determine where to trim the fat.http://moneyfor20s.about.com/od/gettingoutofdebt/ht/DebtPymtPlan.htm
2) Once you have a clear cash flow picture, the next step to getting rid of debt is actually paying yourself! However long it takes, set at least $1,000 aside in an emergency fund, something that’s separate from and not as easily accessible as your checking account. Think of it as a cushion for home or car repairs – some of those unexpected things you might normally put on a credit card.
3) Once that emergency fund is established, start chipping away at your smallest credit balance. There’s something to be said for the psychological victory of eliminating even the smallest debt from your radar screen. Excitement and momentum are important.
You may surprise yourself after that first, smallest balance is paid down. Suddenly, the next one seems a lot more doable. Just know that with every credit account you close, you’re not only eliminating a debt burden, you’re one step closer to achieving your financial hopes and dreams.http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp
Confidence builds as you move on to each increasingly bigger goal. It may take months or years. Stick with the process and your debt will soon be history. You’ll then be in in a much better position (and mindset) to pad that retirement account or children’s college fund. For now, let’s focus on the here and now. Youcan
get out of debt. Three steps. They’re not easy. But they work.