6 STEPS TO GET OUT OF DEBT
Why not plan to
lighten your financial burden?
Presented by Jared Daniel
Positive
moves to counteract negative cash flow. In its most recent Quarterly Report on Household
Debt and Credit, the Federal Reserve Bank of New York put aggregate U.S.
consumer debt at $11.4 trillion in the fourth quarter of 2010. Divide that by
the Census Bureau’s estimate of 114.8 million households in 2010 and you get an
average American household debt of $99,303.1,2
Of course, some of this staggering
debt level can be attributed to mortgages. But the borrowing doesn’t stop
there.
Every day, people draw on money
they don’t actually have – via credit cards, payday loans, home equity lines of
credit, and even their 401(k)s. Many of them end up making minimum payments on
these high-interest loans – a sure way to stay indebted forever.
If
this is your situation, you may be wondering: how do I get out of debt?
Let
me give you some ideas.
1)
Make a budget.
“Where does all the money go?” If you are asking that question, here is where
you learn the answer. You might find that you’re spending $80 a month on energy
drinks, or $100 a week on lousy movies. Cable, eating out, buying retail – costs
like these can really eat at your finances. Set a budget, and you can stop
frivolous expenses and redirect the money you save to pay down debt.
2) Get
another job. I know, this doesn’t sound like
fun. But having more money will aid you to reduce debt more quickly. A family
member who isn’t working can work to help reduce a shared family problem.
3) Sell
stuff. The Internet has proven that everything is worth
something. Go to eBay or craigslist – you’ll be amazed at the market (and the
asking prices) for this and that. What people collect, want and buy may
surprise you. Don’t be surprised if you have a few hundred dollars – or more –
sitting around your house or in your garage. You might be able to pay off a
couple of credit cards – or even a loan – with what you sell.
4) Ditch
the big car payment and drive a cheaper car that gets good MPG. Say
goodbye to the oversized SUV (or the overpriced sports coupe). Get a car that
makes sense instead of a statement. Your wallet will thank you.
5) Pay
off all debts smallest to largest. The benefits are psychological as well as
financial. Knock off even a small debt, and you have an accomplishment to build
on – encouragement to erase bigger debts. Also, every debt you have incurs its
own interest charge. One less debt means one less interest charge you have to pay.
6) Or,
pay off your highest-interest debts first. Take a minute to
figure out which of your debts hits you with the highest interest rate. Pay the
minimum amounts toward each of your other debts, and apply all the extra money you
can toward paying off the debt with the highest interest. This will have a
cumulative effect. Your highest-interest debt will become smaller, meaning you
will be saving some dollars on interest charges on the balance because the
balance is lower. If the balance is lower, you should be able to pay off the
debt faster. When you say goodbye to that debt, you can start paying down the debt
with the next highest interest, and so on.
Keep the real goal in mind. Building wealth, not reducing
debt, should be your ultimate objective. Some debt reduction and debt
consolidation planners obsess on getting you out of debt, but that is only half
the story. Minimizing debt is great, but maximizing wealth is even
better.
You
can plan to build wealth and reduce debt at the same time. If you have a
relationship with a financial advisor, you might be able to do it in the same
unified process. Why just keep debt at bay when you can leave it behind? Do
yourself a favor and talk with an experienced financial consultant who can help
you pursue the goal of lifetime wealth.
Jared
Daniel may be reached at (480) 987-9951 or Jared.Daniel@WealthGuardianGroup.com.
This material was prepared by Peter Montoya Inc., and does not necessarily
represent the views of the presenting party, nor their affiliates. This
information should not be construed as investment, tax or legal advice. The
publisher is not engaged in rendering legal, accounting or other professional
services. All information is believed to be from reliable sources; however, we
make no representation as to its completeness or accuracy. If assistance or
further information is needed, the reader is advised to engage the services of
a competent professional.
Citations.
1
newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q42010.pdf
[2/11]
2
census.gov/prod/1/pop/p25-1129.pdf [4/96]
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