Today, many Americans find themselves in a financial crisis.
Personal bankruptcies are being declared in record numbers
with one out of every 100 families experiencing this tragic
legal process, according to a survey conducted by American
Express.
Although the stigma has lessened, the effects can be
long-lasting. Getting a job or an insurance policy can be
very difficult if personal records are marred by bankruptcy.
Acquiring material possessions, taking trips to popular
vacation destinations or dining out regularly at fine
restaurants will eventually lead to faded memories. But the
aftereffects of many credit card charges can linger for
decades due to the power of compound interest. Paying three
to four times the original purchase amount in fees and
interest charges is a definite possibility. Making minimum
payments on credit cards or other unsecured debt will
eventually bury consumers in debt quicksand.
Here are six tips that can help to completely eliminate
personal debt if individuals are willing to make some
lifestyle changes:
Itemize debts from the smallest balance to the largest
regardless of the interest rates. List the minimum amounts
due on each bill. Make the largest payment possible on the
smallest debt and make minimum payments on all other
consumer debt. Once Debt #1 is fully paid, apply the
payment from Debt #1 to Debt #2 (plus its minimum payment).
Work through each debt obligation using this strategy until
all debt is fully paid. Some financial advisors would
suggest reducing high interest rate balances first but the
goal here is to gain pay-off victories and to keep momentum
rather than being concerned with interest rates. Attempting
to pay-off a large, high interest rate balance first could
lead to frustration and diffuse any good intentions to
eliminate debt.
Cut up the credit cards. This will take some courage but
it's necessary in order to get out of debt completely. If a
plastic card is necessary, consider a debit card which acts
like cash, not credit.
Don't borrow by establishing a home equity line of credit.
The inability to make these loan payments, could eventually
lead to a home going into foreclosure.
Create a money spending plan based on the "10-10-80"
formula. The first 10% goes to charitable organizations or
to a place of worship. The next 10% goes to personal
savings. The final 80% is used to pay for basic living
expenses. Keep in mind, that these are ideal percentages.
Consider lower percentages to start if it's difficult to
give or save 10%. The importance is in the order, giving,
saving, and spending.
PAY CASH for things. No cash, no purchase.
Get debt counseling but be cautious of credit counseling
agencies, debt management plans (DMP), debt settlement or
debt consolidation companies. There are too many predatory
"debt counseling" companies looking to make a fast buck at
someone's expense. The best approach is to consult with a
financial planner, preferably a CERTIFIED FINANCIAL
PLANNER™ professional (CFP®). These individuals
have a client's welfare as their top priority. Their fee is
a small price to pay if it means getting out of debt
permanently.
Making the transition from a credit/debt lifestyle to
cash-basis living takes time, effort and discipline but the
rewards make it worthwhile.
Digging out of a debt hole requires a change in mindset. If
financially distressed individuals are willing to commit to
change, the road can eventually lead to financial freedom
and peace of mind.
----------------------------------------------------
Rob Smith, CFP® and President of Debt Mentors, LLC
devotes his financial planning practice and website to
helping people with solid strategies related to money
management, debt elimination, and wealth building. He has
worked with individuals, families, small business owners,
and credit unions for the past 25 years.
http://www.debtfreelivingplan.com/home
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