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Personal Debt Control

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Careful planning and budgeting is what it takes to manage debt.

Careful use of debt allows you to buy big-ticket items such as a house or car you otherwise couldn't afford. The key, though, is to control your debt, not let it control you.

How to Get Debt Under Control

The basics are simple: Cut down non-essential spending and put the extra money toward debt payments. Here are some steps you can take toward debt control.

  • Understand exactly how much debt you have. Look at mortgage, auto loans, credit cards, past due balances on bills, etc.

  • Track day-to-day spending. For a full month, write down everything you spend. You'll soon see where you can reduce spending and apply the savings to paying down debt.

  • Make a budget. Identify mandatory (housing, utilities, food, etc.) vs. optional (entertainment, travel, etc.) expenses.

  • Work with creditors. Contact your lenders and credit card companies to try and work out a lower payment plan or interest rate.

  • Avoid credit cards. Because each purchase is a loan, ask yourself if it's worth taking out a loan to buy the item you're purchasing. If not, pay by cash, check or debit card.

  • Pay down loans or credit cards that charge the most interest first, while paying at least the minimum on all others. Once the high-interest debt is paid off, tackle the next highest, and so on.

  • See if you can refinance your mortgage at a lower interest rate.

  • When you shop, take a list and stick to it so you only buy what you need. Use coupons and other discounts whenever possible.

  • Move the balance of high interest credit cards to a card with a lower interest rate. Watch for any fees to transfer a balance.

  • Consolidate debt into one personal or home equity loan. Home equity loans typically have a lower interest rate and the interest may be tax deductible.

  • Identify areas to cut back. (Examples: Do you need a lawn service or can you mow the grass yourself? If you have a cell phone, do you need a landline?) Apply the savings to lowering debt.

  • If necessary, get a seasonal or part-time job and commit the extra money to debt relief.

The Federal Reserve has a credit card repayment calculator to illustrate the cost of carrying a balance on a credit card. This calculator will tell you how long will it take to pay off a credit card at your current payment rate. It will also tell you how much interest you’ll pay over the course of the loan.

For personal investment and tax advice for savings, loans or new accounts, contact an accountant, tax advisor or personal investment consultant.

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