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Are you worried about the debt load you're
carrying? Don't wait till you're in over your head….
Unless you're already wealthy, it's hard to get through life without
debt. Unexpected expenses, job loss, illness and other financial
reversals can undermine even the most stable financial situation.
So can over-spending. It's tempting to use your credit cards to
live beyond your means, but this is a strategy that will cause you
financial pain if you're not careful. Credit card and consumer debt
such as auto loans are the two biggest categories of problem debt.
Your first step to improve your finances is to
put a halt to the problem debt you've been accumulating:
1. Get rid of all your credit cards except the
one with the lowest rate, and use that one only in case of an emergency.
2. List of all your consumer debts and make a plan to pay them off
in order, starting with the debt that has the highest interest rate.
Once you've gotten your spending under control,
consider these steps to help you pay down your debts faster and
with lower finance charges:
Consolidate your bills
If you have several high credit card balances, consider taking out
a single home loan and paying off all your bills at once. A debt
consolidation loan will almost always offer a lower rate than your
credit cards, and that can mean big savings on your total monthly
payments. For example, if you owe a total of $30,000 on three cards
with an average rate of 15 percent, paying them off by taking out
a loan at 10 percent will save you $1,500 in the first year (minus
the closing costs on the loan). In addition, rather than making
several payments each month, you'll have just one.
Tap into your home equity
Many homes have increased in value significantly over the past few
years. If you have built up substantial home equity, it may be a
good idea to use some of it to pay down your other debts. Home equity
loans carry low interest rates because they are secured with your
property, which makes them an excellent choice for a debt consolidation
loan. .
If you're thinking about a new mortgage, another good option is
cash-out refinancing. This allows you to turn your home equity into
cash to pay off what you owe, and then add that amount to your primary
mortgage. Your new principal will be higher, but your rate will
almost certainly be much lower than what you are currently paying
on your consumer debts and you'll have the convenience of a single
monthly payment.
Debt consolidation and refinancing can be useful
tools to help you get out of debt. But remember, the only way to
make sure you don't once again find yourself in the same situation
is to make a promise to live within your means, and not spend more
than you make.
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