Joe Halladay 's blog ::Where did the name sequester come from It is debt reduction.
When money is tight, lowering your personal debt is the best way to free up money for day-to-day expenses. While debt consolidation programs are one way to lower personal debt, an easier way is just to do it yourself. Having lived through a recession once before, I've discovered that living relatively debt free is the only way to survive tough economic times, rising prices, and job losses. Without consumer debt, a family can get by on much less income. And once the debt is paid off, that money can be used to invest in things that matter such as a house or a retirement fund. If reducing personal debt is your goal, you'll be pleased to discover that it is just not that hard to do. It does however take discipline and the determination to stick to a budget. 1. Drafting a Budget. Before starting a debt reduction plan, you must get some sort of feeling for where your money is going. Tracking expenses and income in an organized method is called "budgeting" and is the most important financial tool available for personal debt management. In the interest of saving space, I won't go into the specifics of how to draw up a budget (View How to Create a Budget from About.com for help); what is important is that you devise a budget for tracking how and where your money is being spent. 2. Breaking down costs. Once your household expenses and income streams are in budget form, it becomes very easy to analyze spending patterns and break them into variable and fixed categories. To use my household budget as an example, I group our family expenses into two categories titled "Expenses I Can't Do Anything About" and "Expenses I Can Do Something About." --In the "Can't Do" column are the fixed expenses such as the mortgage payment, the car payment, credit card payments, insurance premiums, tuition payments, internet services, and other type of monthly consumer debt. --In the "Can Do" column are the variable expenses that are different from month to month. Variable expenses include utilities, groceries, fuel, apparel, and so on. It's in this column where a person can find the money needed for debt reduction. 3. Where to find money for debt reduction. Once these variable spending patterns have been identified, it will be easy to see areas that can be trimmed. Eating out, going to first run theaters, buying videos or junk food are just a few examples of expenses that can be eliminated for the time being. Other areas, such as groceries, apparel, and utility use can also be pared back by 25% or more to free up cash for paying down your debt. Need more ideas? How to Squeeze Your Household Budget is filled with many other cost-cutting suggestions. 4. Coming up with a Debt Reduction Plan. Now that you've freed up some cash, let's tackle that debt. How you pay that debt depends on your future financial goals. --If buying a home or taking out a home equity line of credit is a future goal, personal bankers recommend paying down the debt evenly. --If saving money on interest is the objective, making accelerated payments on the highest interest card is best. Once the highest interest rate credit has been paid off, you can begin moving on to the next highest credit card. --If lowering the number of your credit card bills is the goal, paying down the smallest bills first is a great plan. This is what I do, incidentally because I need that mental pat-on-the-back of "Whew, another bill gone!" With this debt reduction plan, any extra money is used to pay off the lowest bill first and once that bill is paid off, can then be thrown at the next bill in the queue. 5. Find a lower rate. One tip that can also speed up the debt reduction plan is by negotiating lower credit card interest rates. This can save a consumer hundreds of dollars a year and will help pay down debt even faster. Options include switching to a 0% promotional rate on another card for a year, taking out a home equity line of credit at a lower interest rate, or calling up the customer service department of the card company to negotiate a lower rate. How to Get A Lower Interest Rate on Your Credit Card can show you how easy this process can be. 6. Stick to the Plan. The hardest part of any debt reduction plan is sticking with it, especially since it could take months ~ and even years ~ to fully extract yourself from debt. A strategy that used to work for my husband and me was to post our debt reduction goals on the frig and reward ourselves with a $25 shopping spree at Barnes & Nobles whenever we hit a milestone. Tracking your progress on the frig is a great way of keeping this goal in the forefront of your mind; rewarding yourself with a special incentive will keep you moving in the right direction towards debt free living. More by this contributor: How to build up wealth through frugal living How to save money easily without changing your lifestyle. |
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