Personal Debt Reduction
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For many families, personal debt reduction is a major priority as they seek assistance in ridding themselves of overwhelming obligations. Unfortunately, some people are finding themselves on economic thin ice at a time when adjustable rate mortgage payments are skyrocketing and businesses are closing their doors. The best defense against money troubles is to go on the offense. This is not the time to hide under the bed and wait for the nation's economy to heal itself. Instead, the wise individual will face the facts of his or her personal financial situation and take appropriate steps to improve it. Help is as close as the nearest computer for anyone who is determined to get out of debt. Numerous websites provide tips and ideas on saving money. Some even have specialized worksheets that allow consumers to enter information about credit card balances and interest rates. After the information is entered, the program provides a personal debt reduction plan for paying off the credit card companies. Other resources, such as books and magazines, can be a great help when it comes to sound money management techniques. Though participants usually have to pay to attend financial workshops and seminars, the price may be worth the knowledge that is gained and the tools that are given.
The first step in reaching the goal of personal debt reduction is to sit down with the checkbook, a calculator, pay stubs, and monthly statements. First list all income sources and the monthly net amount (less all withholding). People who get paid every two weeks can multiply the net wage by 26 and divide that answer by 12 to get the monthly amount. The next step is to list all regular household expenses, such as mortgage or rent payments, utilities, and insurance premiums. Periodic expenses also need to be listed. These are expenses that come due less frequently than once a month, but that need to be calculated as a monthly expense. For example, homeowner association dues may be $480 annually. The monthly payment would be $480 divided by 12 which is $40. Money should be set aside each month to pay these periodic expenses when they come due. An amount for groceries and other household incidentals should also be included with this list. The total of these regular expenses are deducted from the net income. The remaining amount is available to pay debt obligations. Finally, make a of all debt obligations, such as student loans, car payments, and credit card debts. These items are the primary targets of a personal debt reduction plan. All this information provides a snapshot of how much money is coming into the household and how much is going out. The process may seem cumbersome, but taking the time to create these types of financial worksheets is the best way to understand one's personal financial situation. Wise Solomon encouraged his readers: "So that thou incline thine ear unto wisdom, and apply thine heart to understanding; Yea, if thou criest after knowledge, and liftest up thy voice for understanding; . . . Then shalt thou understand the fear of the LORD, and find the knowledge of God" (Proverbs 2:2-3, 5).
Basically, the goal of personal debt reduction can be accomplished in only two ways: by increasing the income into the household and by decreasing the expenses. Both avenues need to be explored and evaluated to come up with a workable plan. Income may be increased by working overtime hours or getting a second, part-time job. Though this may be exhausting, it's only temporary. Once the debt total has decreased, the second job will no longer be needed. Having a garage sale or selling items on online auction sites are great ways to bring in some extra cash. Perhaps a comic book collection or handmade crafts can be sold. This may be the perfect time to launch an internet store that offers a unique item to a niche target market. Self-employment, even on a part-time basis, also has certain tax advantages. The primary objective in this part of the personal debt reduction plan is to increase income, even if only temporarily, and to use that extra money to pay the debt obligations.
Decreasing expenses is the second avenue for reducing personal obligations. Now is the time to take another careful look at the first list of regular household expenses and to ask some tough questions. Is it necessary to spend almost $50 a month on a gym membership that is never used? Is taking the toll road to work really worth the expense? Are there better deals on car insurance? Each item can be evaluated and perhaps some can be decreased or done away with altogether. The next step, suggested by many financial experts, is to track all spending for one month. That includes the seventy-five cents spent at the employee cafeteria vending machine and the daily specialty coffee bought during the morning commute. What about all those trips to the video store? People are usually very surprised to see how much money slips through their fingers without much notice. Curtailing this type of spending frees up cash for the personal debt reduction plan.
Some people who complete this exercise may need more drastic solutions than cutting back on spending. Though it may be tempting to take out a home equity loan or to withdraw money from retirement accounts, these are not recommended options. Eliminating the debts, not consolidating them, should be the goal of the personal debt reduction plan. Bankruptcy should only be considered as a last resort. Financial resources and guidance are available to anyone willing to seek assistance. Last tip: incline thine ear and knowledge will be found.
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