Using Debt Management to take control of your finances
If you are seraching for information on debt management unfortunately it means that you have spent yourself into a whole. In order to take control of your finances you are going to have to tackle your debt head on -- not an easy or fun job.
The first step to debt management is isolating your discretionary expenses and elimanating them. Imagine that you are poor and living in a third world country. How much money are you going to need to survive? Yes, the cost of living in the United States is really high, but so are the unnecessary things we spend money on.
If you read any article or blog online about debt management they are going to point out the obvious areas to cut spending -- clothes, fast food, concerts, sporting events, cable TV, cell phone, and on and on.
I am going to add something in here that is my own opinion -- don't sacrifice your health to eliminate your debt. You've got one life and it just isn't worth it. I remember reading a message board on living cheaply and people were talking about eating for dollars a day. Too bad that the meals were far from a balanced diet. If thats what it is going to take you to clear your debt just declare bankruptcy and move on with your life; yes, there is life after bankruptcy.
Chances are that it won't come to that. Most people who are deep in debt, other than through medical expenses, are in debt do to overspending in all areas of their life. Sit down and write out a list. Here are a few areas to look at:
1. Dining out (how often & how much?)
2. Entertainment (tickets, food, extra expenses including parking and gas)
3. Recuring Bills (cable TV, mobile phone, subscription magazines & newspapers)
If you have a recent credit card statement take a look at it. Don't just look at you biggest expenses but also look at your most frequent expenses. If you are eating out every day, thats a must go.
Ultimately you are accountable for yourself. Easy credit has many advantages but if you don't have the self control its going to hurt you.
Next you need to take a look at your bills and pay off the costliest first. For the average person credit cards will have the highest interest rates. If you are paying the minimum every month you probably won't even pay it off before you die. This means you need to be ready to pay down a big chunk every single month.
You may have heard people talk about good debt vs bad debt. Credit cards fall under the catagory of bad debt. They have a high interest rate and they don't appreciate, unlike a mortgage.. at least in theory.
Actually, some credit card debt can be good. For example, you could use your credit card to fund a business. On the flip side in a declining housing market you could experience a reverse mortgage. I will get into the details of this in another article, but the short story is that you could find yourself screwed big time. There are situations were you can not only lose your home but end up owing the IRS taxes because of it! Imagine that!
If you have an adjustable rate mortgage on a home that would become unaffordable for you if interest rates were to rise a point or two I recommend selling it and getting into something more affordable.
The speed at which you will be able to pay off your debt depends on you. Can you eliminate all those things that make your life fun for a year or two? Can you work an extra job just to pay off a credit card? As I said before, its not a nice situation, but its reality.
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