Debt Reduction Budget
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Debt reduction budgets are set up by conscientious borrowers as soon as they incur new credit accounts and are a means to plan ahead for repaying any loan that is necessary before the bank account is depleted each month. By planning to save money in a debt reduction budget, the borrower also assures that their debt ratio is not overly burdened which results in not only money problems, but also credit problems when seeking additional loans or credit accounts.
This form of budgeting takes into account the total income that is guaranteed each month and also any sporadic income that occurs on a less consistent time frame - monthly, semi-annually, annually. These amounts are considered within the debt reduction budget, but are estimated and divided over the yearly income, also considering normal living expenses that include utilities, food, gasoline, and other necessities of living. Debt reduction budgets are included on the liability side of the balance to make sure they are consistently paid into. Thereby, these budgets become assets and focus on balancing these two ends of the financial spectrum - the assets and the liabilities that vary from individual situation to situation. The key to the balance of debt reduction budgets is to never allow one side to overwhelm the other. Even if the income level is the heavier side, it is necessary in a budget to reallocate a portion of the excess into investments that will prevent an over confident state. This lop-sided state results in spending the excess and cataclysmically destroys the balance by rocketing the liability side into oblivion.
Budgeting is also a safe way to be prepared to pay back loans and credit accounts as soon they have been used for the purpose intended and before the finance charges hit. If a short term loan can be used for various economic benefit purposes and yet be paid off quickly, it will reduce the amount of extra interest a consumer pays on a great sale item, for example. A smart financial plan will include a debt reduction budget to plan ahead for the inevitable credit emergency that arises in everyone's lives, but it also provides that financial pad that will soften the fall when other income sources dwindle and fade.
Preparedness is a preferred trait that is commended by the Lord. The Proverbs gives the example of the ant, "which having no guide, overseer or ruler, provideth her meat in the summer and gathereth her food in the harvest." Yet the sluggard is condemned to poverty after "yet a little sleep, a little slumber, a little folding of the hands to sleep" (Proverbs 6:6-11). Debt reduction budgets are a wise move of financial preparation, especially in a generation of credit abundance.
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