Now is a great time for paying off debt

Be Debt-free This Year

by Shaunna Privratsky


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A new day is dawning in the United States of America. People are waking up and realizing they are drowning in debt. High limit credit cards and easy home equity loans are disappearing. Retirement and savings funds evaporated in the wild ups and downs of the stock market. Many people don't know where to turn.

Now is the perfect time for paying off debt. Try these steps to whip your wallet into shape. First of all, take stock. Some people may be shocked to learn exactly how deep they are in debt. It is essential to know where you stand, so you can start fixing it.

Gather all your credit card bills, loan statements, car loans and mortgage papers. List all the amounts, starting with the lowest balances.

The plan is pretty simple. Stop charging on your cards. If you feel you can't make it without cards, you will have to create a workable budget. Adjust your spending so that your income is a little more than your expenses. This could be a drastic change, like going on a crash diet, but with discipline, your pain will equal financial gain when you get your spending appetite under control.

Now create a goal to pay off one card first. You must find extra money to add to the minimum monthly payment, as much as possible, to get that card completely paid off. Continue making your regular minimum payments to your other cards, car loan, mortgage and household bills. Paying bills on time is the quickest way to boost your credit score. It sends a strong signal to your lenders that you are serious about your debt-elimination goals.

Congratulations! After months of scrimping, you have paid off the first card. Celebrate your accomplishment, but not by going on a spending spree. Look for inexpensive ways to have fun.

Now take that payment and add it to the next card in line. Continue chipping away at the larger amounts. You are well on your way to being debt free.

Before you get complacent, let's explore the many reasons people fall into debt. Some may be their fault, and some may just be circumstances. See if your debt problems stem from any of these common causes, so that you don't fall into the debt trap again.

Divorce is one of the costliest decisions to befall a couple or family. Suddenly you are no longer sharing expenses or income, but living separately, with additional costs for housing, transportation and food. From a purely financial standpoint, divorce is devastating and recovery can take years. Conversely, money issues are the leading cause of divorce. If at all possible, try to work together to solve money problems before they take the ultimate toll on your family.

Job loss or reduced hours is another major cause of debt. With the same bills, but no money or less coming in, it is all too tempting to reach for the credit cards. While sometimes necessary, it is crucial to get your income and expenses back in line as soon as possible. Either increase your income, perhaps with a second or better paying job, or reduce your spending. Tackle it from two fronts and do both.

Medical expenses are skyrocketing, while insurance rates are becoming out of reach for many Americans. A sudden illness or a life threatening diagnosis can wipe out even the most financial savvy. Keeping on top of your health with preventive visits, carrying insurance, and working with your doctors are the healthiest money moves you can make. If you already have huge medical bills, work with the billing department to reduce or settle them for a lesser amount. They will set up a payment plan that will fit your budget.

Do you have a rainy day fund? Are you counting on your credit cards in an emergency? Your current debt may stem from "emergencies" like an unexpected trip to the car repair shop or a huge heat bill. If you have a cushion of cash for those emergencies, you will not have to reach for your cards. Start a fund now. As the balance grows, so will your peace of mind.

Stop wishing for a gigantic tax refund or for the government to send out another stimulus check. If you got into debt because you were waiting for a windfall, then stop wishing. That promotion you were promised might not take place. You may just be lucky to keep your job. Don't bank on future money until you have it.

It may have started with a fun night out with your friends. You put a little money down and won a modest amount. It seems easy to make lots of money by gambling. Yet if you spend more than you can afford to lose, gambling always leads to debt and can become an addiction. If you can't stop, seek counseling to control your habit.

Maybe you're just not good with money. Your parents might not have talked about money, you may not have learned anything in school about it, and now that you are in debt, it is a shameful subject. You can educate yourself through countless money advice sites on the Internet like:

You can also seek help from the National Foundation for Credit Counseling at NFCC.org or call 1-800-388-2227. Or check your local yellow pages for credit counseling services. Most have a sliding scale, so you only pay what you can afford.

No matter what caused you to fall into debt, these tips can help with paying off debt. With some dedicated dollar stretching and smart money moves, you can dive into a debt-elimination diet and become debt-free this year.

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