How to Take Control of Your Debt

In the United States, debt is very common in most households. People acquire debt by using credit in order to purchase houses, cars, appliances, and other essentials in life. In most households, there is a balance between income and debt, and as long as the debt to income ratio stays within that acceptable range, the household's finances are stable. But, if something occurs that disrupts the household's comfort level of debt, there could be severe consequences. Job loss or change, unexpected home improvements, or medical bills can all have a detrimental effect on a household's budget. Unfortunately, once these unexpected expenses occur and the household's debts spiral out of control, there is usually no quick fix. Professional help may be needed, which may include: bankruptcy or consumer credit counseling. Although for this article, we are just going to look at ways to reduce and pay down debt. The following suggestions are debt reduction ideas, which will help you take control of your finances.

1. Stop Charging - If you want to reduce your debts, stop adding to your credit cards. Even if you pay more than the minimum balance, it will be a self-defeating process if you keep adding to your debt.

2. Transfer Balances- If you have numerous credit cards, you could apply to transfer the balances to a credit card that offers zero interest for 6 or 12 months. At least this will stop additional interest, and give you time to reduce the principal balance.

3. Consolidate- Depending on the amount of debt and the amount of time that you calculate it will take you to pay the debt off, you may want to apply for a consolidation loan, equity loan, or cash out refinance of your home. Rolling revolving debt into a term loan will force you to pay the debt off in a set period of time.

4. Borrow Against Yourself- If you have the ability to borrower against a 401k or retirement plan, you may be able to borrower enough money to pay off your debt and pay your retirement account back with no tax ramifications. Please consult your 401k plan advisor or accountant for this option.

The key to getting out of debt is to make a plan and stick with it. It is important to write down all your debts, or make a spreadsheet and decide how you will pay the debts off. Once you start making progress and eliminate bills it is easy to fall back into the same routine and charge normal expenses such as: birthdays, Christmas, and vacations; but the prudent way to pay for these items is to save throughout the year and pay for them from your savings. If you have $10,000 in debt and are charged a 10% interest rate, you will end up paying $1000 in interest per year. I'm sure everyone can think of something better to do with a $1000 than give it to a bank or credit card company. Fight the temptation and control your finances by saving for large expenses and paying cash.

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