Personal Finance Advice

The last few years have featured a widespread acceptance of utilizing credit to make everyday purchases,  but now as most people tighten their belts it has become glaringly obvious that maybe our grandparents were on to something when they warned us to be careful with credit.  Many people are now needing to scramble quite a bit to cover all their monthly debt obligations, and for a good portion of these folks the main problem is the credit they enjoyed with a little too much zeal.

Even if your personal finances are stretched a little thin right now, it is still a great time to try to pay down your debt.  There is no way to know if the economy is going to get better or worse, so it’s best to be cautious and do what you can now to try to ensure that you aren’t bankrupt within a few years. 

Here are some ways to start paying down your debt:

1.  Figure out how much you actually owe.  Some people aren’t even sure exactly how much money they owe.  It can get difficult to keep track of debt, especially if there is a mortgage, equity loan, auto loan and credit cards in the mix.  This isn’t a viable excuse to completely lose track of your debt, however, and at the very least you should always know an approximate figure of how much you owe total.  When the time comes to start paying the debt down then it’s time to sift through all your statements and figure out exactly how much you owe so you know what you’re up against.  Tally up all your debt to see where you stand.

2.  Figure out what you should pay down first.  Don’t make a huge effort to pay down your primary mortgage if you have a bunch of high-interest credit card debt, and don’t try to pay down your equity loan first if you have a personal loan.  Although there are always exceptions - such as when you’re trying to pay down your mortgage to a lower level before you attempt to sell your house - it is usually best to pay down unsecured debt first.  Why? The two main reasons are this: The mortgage loans are probably tax deductible, and the interest rates are probably higher on the unsecured debt.  You decide which unsecured debt to pay down first, but once you make the decision you should put extra payments toward the debt as much as possible.

3.  Figure out how long it will take.  You’ll have a better idea of how much money you should put toward your debt to get it paid down if you use a debt calculator to figure out how long it will take.  Getting a realistic view of the effort required to pay down your debt will help you get serious about your personal financial goals.  In other words, if you have several thousands of dollars in credit card debt and you think that adding $100 a month to the debt will get you debt-free rapidly, think again. 

4.  Get serious.  Face it; it’s not a lot of fun paying off debt.  You can’t spend like you used to and it takes a while before you see any light at the end of the tunnel.  On the other hand, if you aren’t dedicated to getting the debt paid down then it’s unlikely to happen.  Figure out what you have to do to get serious about paying off your debt and then get to work.  You may be surprised at how quickly your debt starts to disappear once you get serious about the process.