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Although each person’s finances are unique, most share a common feature: Debt. Despite the negative connotations the word sometimes conjures-up, debt is a natural part of even the healthiest family finances. It is not until the cost of credit obligations becomes oppressive or balances become unmanageable that problems emerge.
Effective debt management is at the heart of financial security, so controlling revolving balances and installment obligations is a fundamental concern for household money managers. In spite of our best efforts to maintain a steady flow, however, financial challenges are common, particularly those related to managing, paying-down, and living with debt.
Left unchecked, household debt easily climbs beyond affordability, creating a cycle some families have a hard time breaking. Whether you are troubled by a particular balance you’d like to reduce, or simply want greater accountability managing credit obligations, the following moves can help you get a handle on household debt.
Learn where your money goes
Hectic modern lifestyles leave few opportunities for dwelling in the past. As a result, runaway debt can sneak up on families focused on tomorrow’s monetary needs, rather than yesterday’s spending decisions. Too often, recognizing the cycle of oppressive debt is delayed, allowing the problem to grow unseen, before it is finally addressed. Unfortunately for those experiencing extreme debt, the effort required overcoming the problem grows with each spending misstep.
Until you understand the scope and nature of your debt difficulties, it is hard to craft a realistic recovery plan. If you are serious about lowering interest payments, finance charges, and other high costs associated with your credit burden, the first step toward relief is examining household cash flow.
Some spending is easy to track, such as lease payments, insurance premiums, and other repeating costs you can count on, month after month. Customary, day to day spending, on the other hand, doesn’t always show its impact on your budget, until you take a close look at where your money goes. For the best results, make a habit of noting each and every purchase. You don’t have to do this for the rest of your life, but a well-articulated spending record is vital to improving your financial standing.
A comprehensive snapshot of household cash flow illuminates spending trends you may not have previously recognized. As patterns emerge, most individuals tracking their spending for the first time are surprised to see a large number of cost-cutting opportunities.
Reduce your cost of living
Armed with information about your spending habits, it may be possible to reduce your cost of living and the underlying debt fueling your financial distress. The most effective cost-cutting approach accounts for all the categories in your household budget, striving to eliminate unnecessary expenses, without sacrificing quality of life. The following examples illustrate some ways others have reduced the cost of credit debt:
Refinance – Mortgage rates continually shift, responding to market forces. Depending upon your current rate and the cost of refinancing, you may be able to save money by refinancing your home loan.
Restrain revolving debt – Credit cards are a modern convenience, enabling trouble-free purchases in wide-ranging settings. Too often, balances are allowed to climb, without reconciling the debt against personal income. Excessive revolving debt is among the most common sources of credit pressure, so cutting-back credit card use yields immediate results to your bottom line.
Use the right type of financing – Several types of financing are available, each with distinct advantages, depending upon the circumstances. And since credit terms vary widely, applying the wrong kind of credit to your need may result in higher cost of repayment. To make the most of each credit opportunity, use cost-effective solutions to cover your spending needs. Equity loans and lines of credit, for instance, are perfect for funding home improvements and other substantial costs, calling-for extended financing. Without equity to draw from, a personal loan may be the next best option, while a short-term loan is appropriate when cash is needed on the spot, but can be quickly paid-back.
Reduce premiums – As a source of regular spending, insurance premiums may yield room for savings. Assigning lower deductibles and accurate coverage levels can reduce premiums, freeing funds to pay-down credit balances. And like other financial products, it pays to evaluate life insurance coverage options and explore alternatives with your carrier.
The weight of personal debt can interfere with prosperity, so reducing credit costs is a positive step toward financial security. By tracking spending and reducing your overall cost of living, you’ll have more money available to correct past borrowing mistakes and focus on your financial future.
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- While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.