A little debt is sometimes a necessity. There is “good” debt, like a mortgage that is backed by a sizable asset, and there is “bad” debt, like that which comes from excessive consumer spending.
While it’s important to pay attention to all kinds of debt, today we’re going to take a closer look at three ways to reduce consumer debt.
Face the Facts
It can be hard to acknowledge just how much debt you’re in, but when you’re trying to find your way out, it’s important to look at the whole picture of your consumer debt.
Make a list of all debts, including those that don’t appear on your credit report, like loans from family and friends. Failure to pay the bank damages your credit, but failure to pay back personal loans can damage relationships. It’s important to make sure your debt repayment plan takes care of both.
Prepare a Budget
You can’t know how much you have available to put towards debt repayment until you have a detailed picture of your income and expenses. This means examining your spending patterns for at least the last six months, and preferably for a year. We can promise you this will be an eye-opener as we have yet to have a client who wasn’t shocked by their spending in at least one category.
Once you have a detailed picture of how much you’re spending and where it goes, you can make decisions that are based in reality. After all, a budget you can’t live within is an exercise in futility.
Prioritize Repayments by Interest Rate
When you have a clear picture of exactly how much debt you have, and exactly how much you can afford to repay each month, it’s important to start in a way that makes sense and pays down your debt as quickly as possible.
Begin with the biggest debt at the highest interest rate and allocate as much as you can towards that while still making, at least, the minimum payments on your other obligations. When the most expensive debt is gone, redistribute that payment to your other debts.
When you’re in over your head in debt, it can be hard to visualize a future that doesn’t include calls from creditors and a sense of dread every time you check the mail, or the fear of legal issues arising from nonpayment of your debts. Don’t spend another day afraid to answer the phone! Contact us today to develop your plan to get out of debt and save for your future.