6 Personal Debt Relief Tips for a Successful Debt Diet, Part 1
Wednesday, December 14th, 2011
Currently, U.S. households owe an almost unbelievable $2.3 trillion in non-real estate debts like credit card debt and auto loans. For some Americans, getting out of debt is just plain hard. Whether your debt is the result of unemployment, overspending, or both, here are six personal debt relief tips that will help you start â and successfully complete â a much-needed debt diet.
For part one, we offer three tips about calculating your debt, cutting up your credit cards, and trimming the fat. Make sure to check back for part two, where we offer three more tips on seeking professional help, finding additional income, and rewarding yourself to keep your momentum going.
1. Calculate how much you owe
The first step to beginning your debt diet is to sit down and determine how much you actually owe. Whether you use a money management program, a spreadsheet, a free service like Mint.com, or a pad of paper and a pencil, gather all the information from your various debts and record your current balances. Include credit card debt, student loan debt, auto loan debt, and any personal loans. Record minimum monthly payments, interest rates, and terms. Now you know how much you owe and which debts are costing you the most to carry.
2. Cut up your credit cards
Whether you use your credit cards to pay for living expenses because youâre out of work or use them to pay for things you want but donât need, one of the only ways youâre going to get out of debt is to avoid going into debt any further. Youâre best bet is to cut up your credit cards and cancel your accounts (and pay off your balances under current terms) to prevent further use. Some financial experts caution against closing accounts because doing so could lower your credit score and advise that you keep at least one credit card for emergencies. The important thing is to prevent access to credit cards if you have a problem with spending. Instead, opt for a cash-and-carry lifestyle and use debit cards if you have to.
3. Make a budget and trim the fat
Make a budget based on your income and track your spending for 30 days. It can really open your eyes to how youâre spending â and wasting â money. That $4 cup of coffee you buy every day at work could end up costing you nearly $28,000 over a 35-year career. Investing the same amount of money could earn you $247,000 at 3 percent interest over the same period. And thatâs just coffee. Your debt diet should include cutting out expenses such as eating out and pricey cell phone plans. You should cut back on groceries, utilities, gas, clothing, and gifts, and drop services that you donât use, like gym memberships. You should also change your behavior and stop smoking, playing the lottery, and spending money on other costly habits.
Calculating your total debt, cutting up your credit cards, and trimming the fat will get you enough personal debt relief to get you started on your healthy debt diet. Check back for part two for three more tips that will help you follow through on your debt diet and get you where you want to be financially.
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