Is your debt balance too high? This article helps you decide, and teaches you how to get out of debt.
First Things First
How to Get Out of Debt
In today's American life, there's a line to be walked between healthy levels of debt, and drowning in too much debt. It's all too easy to find yourself with more debt than you think you can deal with.
The average credit card debt in a U.S. household is now more than $9,300. The major credit card companies have made it easier and easier to let those balances rise and rise. What they don't tell you, is that using credit cards for your shopping sprees can hurt your financial health both now, and later.
Are You in Too Much Debt?
And for that matter, how much is "too much" debt? If 20% or more of your income is spent paying for non-housing debts, or if your mortgage payments are 30% or more of your take-home pay each month, you might have too much debt.
If you don't know how much you owe... if you're in the habit of making minimum payments on credit cards - or are having trouble even making the minimum payments... if you are borrowing money to pay off loans... you might have too much debt.
If you are in too much debt, there are steps you can take to reduce and finally get out of debt and start a healthy financial future. This article will explain the steps you can take, and Krebs Financial offers credit repair services and consultations to help you find, and keep, financial freedom.
Step 1: Make a Budget
You need a clear picture of where your money is going. That will help you figure out what your debts are, and where you can reduce expenses in order to pay down your debs.
Spend a month tracking every expense. Keep ATM slips, and write down what you spend the cash on. Keep your credit card receipts as well. Put them in an envelope or box throughout the month.
After the month is over, add up these expenses under two categories: Essentials, and non-essentials. Essentials are food, utilities, mortgage and rent, etc. Non-essentials are your snacks, entertainment, going out, etc. Then, find where you can reduce these non-essential expenses. Pack a lunch for work, for example; take public transportation. After that, figure out how to reduce your essentials, for example by turning your lights off more often, reducing your long-distance phone bill, or reducing your heat and air conditioning use.
The goal of this is to free up some money so you can pay your debts, and of course, to reduce any new debts coming in.
Three Steps to Reduce Your Debt
Now that you have a budget, you can start dealing with your debt by doing these three things:
1. Pay off the debts with the highest interest rates first. This saves you money in the long term. Pay off the high-interest debts as fast as you can, and you will save hundreds of dollars per year or more.
2. Transfer balances on high-rate accounts, to lower-rate credit cards. Be careful - don't switch to a teaser rate that won't stay low. You can research the best credit card interest rates at CardTrak: www.cardtrak.com.
3. Talk to your current creditors about consolidating your debt to a lower-rate account. Companies will often do this to keep a customer in today's highly competitive credit market. Even a fraction of a percent will help you in the long term.
Other Tips on Reducing Credit Debt
• Avoid using credit cards for basic necessities and entertainment.
• Do use credit for expensive, durable purchases like appliances, cars and homes.
• Stick firmly to your new budget and your debt reduction plan.
Conclusion
The level of consumer credit debt in the U.S. continues to rise. If you're spending 20% of your net monthly pay on debts other than your home, or 30% on your mortgage, you might have too much credit debt. Formulate an aggressive debt-reduction budget and stick to it. Pay down your debts with the highest interest rates first, and see if you can combine debts into lower-rate accounts. Finally, avoid using credit for anything that won't last as long as the debt itself!
First Things First
- Tally up your total debt by adding all your credit card, bank loan, and other credit statements.
- Work out what percent of your income is spent on debts. Do this twice: Once for all your debts EXCEPT for your mortgage, and a second time for all debts INCLUDING your mortgage.
- Get your spouse or household partner on-board with the goal of getting out of debt.
How to Get Out of Debt
In today's American life, there's a line to be walked between healthy levels of debt, and drowning in too much debt. It's all too easy to find yourself with more debt than you think you can deal with.
The average credit card debt in a U.S. household is now more than $9,300. The major credit card companies have made it easier and easier to let those balances rise and rise. What they don't tell you, is that using credit cards for your shopping sprees can hurt your financial health both now, and later.
Are You in Too Much Debt?
And for that matter, how much is "too much" debt? If 20% or more of your income is spent paying for non-housing debts, or if your mortgage payments are 30% or more of your take-home pay each month, you might have too much debt.
If you don't know how much you owe... if you're in the habit of making minimum payments on credit cards - or are having trouble even making the minimum payments... if you are borrowing money to pay off loans... you might have too much debt.
If you are in too much debt, there are steps you can take to reduce and finally get out of debt and start a healthy financial future. This article will explain the steps you can take, and Krebs Financial offers credit repair services and consultations to help you find, and keep, financial freedom.
Step 1: Make a Budget
You need a clear picture of where your money is going. That will help you figure out what your debts are, and where you can reduce expenses in order to pay down your debs.
Spend a month tracking every expense. Keep ATM slips, and write down what you spend the cash on. Keep your credit card receipts as well. Put them in an envelope or box throughout the month.
After the month is over, add up these expenses under two categories: Essentials, and non-essentials. Essentials are food, utilities, mortgage and rent, etc. Non-essentials are your snacks, entertainment, going out, etc. Then, find where you can reduce these non-essential expenses. Pack a lunch for work, for example; take public transportation. After that, figure out how to reduce your essentials, for example by turning your lights off more often, reducing your long-distance phone bill, or reducing your heat and air conditioning use.
The goal of this is to free up some money so you can pay your debts, and of course, to reduce any new debts coming in.
Three Steps to Reduce Your Debt
Now that you have a budget, you can start dealing with your debt by doing these three things:
1. Pay off the debts with the highest interest rates first. This saves you money in the long term. Pay off the high-interest debts as fast as you can, and you will save hundreds of dollars per year or more.
2. Transfer balances on high-rate accounts, to lower-rate credit cards. Be careful - don't switch to a teaser rate that won't stay low. You can research the best credit card interest rates at CardTrak: www.cardtrak.com.
3. Talk to your current creditors about consolidating your debt to a lower-rate account. Companies will often do this to keep a customer in today's highly competitive credit market. Even a fraction of a percent will help you in the long term.
Other Tips on Reducing Credit Debt
• Avoid using credit cards for basic necessities and entertainment.
• Do use credit for expensive, durable purchases like appliances, cars and homes.
• Stick firmly to your new budget and your debt reduction plan.
Conclusion
The level of consumer credit debt in the U.S. continues to rise. If you're spending 20% of your net monthly pay on debts other than your home, or 30% on your mortgage, you might have too much credit debt. Formulate an aggressive debt-reduction budget and stick to it. Pay down your debts with the highest interest rates first, and see if you can combine debts into lower-rate accounts. Finally, avoid using credit for anything that won't last as long as the debt itself!