Finding the Ideal Debt Solution

Debt happens toeveryone. Some of it is good debt – like home or student loans. Unfortunately,most of it is bad debt – credit cards, high-rate auto loans, high-rate personalloans, appliance loans, and other debts. You have two debt solution choices:permanent and temporary. For long-term debt reduction, use both.

Budgeting: A Permanent Debt Solution
If you’re truly dedicated to getting out of debt and staying there, there isonly one permanent debt solution – stop spending more than you make. Obviouslymost people can’t expect to buy a house or go to college without incurringdebt, which is why those debts are considered good. But you can stop acquiringbad debt if you reorganize your finances.

It’s difficult, butyou can teach yourself to break away from our accumulation culture and stop thespending cycle. First assess your necessity categories like food, housing,transportation, and childcare. Although you can’t cut those expenses, you canmake better choices.

Start clippingcoupons for products you regularly buy, but don’t use a coupon to buy a productyou wouldn’t otherwise use. Be willing to try other brands if they’ll save youmoney. Often a generic brand is manufactured by the name-brand manufacturer, sowhy not save a few dollars and get the same product for less? If you drive agas-guzzling car, trade it in for a fuel-sipper. Chances are your payments willbe the same, but you’ll save a lot on gas.

You can alsosignificantly cut your non-necessity expenses. For example, if you have cableTV, do you really watch those premium channels? If not, cancel them. You canalways re-subscribe once you’re out of debt, but you may discover you don’twant them anymore. If you have a good-quality pair of jeans that you like, do youreally need a new designer pair just because they’re on sale? Train yourselfnot to make impulse purchases or respond to advertising tricks and you’ll bemuch happier in the long run.

Debt Consolidation: A Temporary DebtSolution
Once you’ve cut your expenses enough to the point where you can afford debtpayments that will reduce your debt rather than maintain it, consider anotherdebt solution like debt consolidation. Credit card interest rates are veryhigh, often 18% or more. If you qualify for a debt consolidation loan, youcould cut that rate in half. Although adding your debts together may produce adebt that’s alarmingly high, you’ll also enjoy the satisfaction of watchingyour single payment quickly shrink that debt.

There are two keysto successfully reducing debt through debt consolidation: 1. Pay as much as youcan every month, and 2. Stop creating new debt. Once you consolidate yourdebts, cut up the cards you used to make the original purchases. Stop buyingnew non-necessities until your debt is gone.

Once the debt isgone, carefully look at your budget. Set aside a portion of your previous debtpayment to create an emergency fund. That way you won’t get back into debt ifyou suffer a medical emergency or illness, need emergency car repairs, or yourhouse needs maintenance. Set aside another portion of your former debt paymentsfor retirement. If you’ve been living comfortably while paying your debt,there’s no need to return to your former spending level. Living on less thanyou earn and saving the difference will create true wealth.