Mastering Your Debt: Debt Consolidation and Three Other Positive Steps

According to a recent survey, nearly half of all Americans are concerned about being able to make their monthly debt payments. If you share this worry, it is time to stop fretting and start taking action. Whether you enroll in a formal debt consolidation program, or simply take some positive steps yourself, now is an ideal time to start working toward paying off your debts. In a soft economy, there is no stigma attached to spending less, and with lower interest rates, debt consolidation loans make more sense than ever. Conditions are right, so consider each of the steps listed below.

1. Budgeting toward zero debt. The first and most important step is planning. If you've never had a formal budget before, now is the time to start one. If you have existing debts, budgeting is not simply a matter of living within your means You need a budget which includes a monthly allowance for paying down debt--and that means doing more than just meeting the minimum payments on your credit cards. Formulating a budget is not just a means of setting a game plan--it is also an upfront test of whether you might need outside help, such as a formal debt consolidation program. If you cannot lay out a detailed and realistic plan to pay off your debts, consider getting that kind of help.
2. Debt consolidation. Debt consolidation is the process of funneling different debt balances into a single debt. This helps organize debt obligations, and should also be an opportunity to lower your interest expense. The idea is to find a debt consolidation loan with a lower interest rate than your credit cards. With lower mortgage rates, refinancing a mortgage or taking out a home equity loan is one option for a debt consolidation loan. However, this should only be considered if you are confident in your budget discipline, and that you can pay off the debt consolidation portion of the loan within a few years. Otherwise, you are stretching payment for short-term spending out over many years, and that is a bad practice.
3. Using your windfalls to pay down debt. Forty-five percent of people surveyed said they would use a financial windfall to pay down some debt. Short of getting an unexpected check from a rich uncle, where can you get that kind of windfall? Start by figuring out how much money lower gas prices is saving you. The same goes if you can save by refinancing your mortgage. Calculate what these savings represent on a monthly basis, and earmark that money for debt reduction.
4. Patient shopping. Train yourself never to make impulse purchases. Always leave the store and think twice about anything you hadn't planned on purchasing. Take the time to comparison shop and use online resources for the best deal. You may find you savor purchases more if you take your time before making them.

Conclusion

Traditionally, economic slowdowns are times when consumers cut back on spending and get control of their debts. If you accomplish this, you will find yourself better able to participate in the good times when the economy finally recovers.



About the Author:
Richard Barrington has been a businessman and writer for a quarter century. Shortly after graduating Magna Cum Laude from St. John Fisher College in 1983, Richard joined Manning & Napier Advisors, Inc., a Registered Investment Advisor. Starting in an entry-level operations position, he worked his way up to become head of marketing and client service, an owner of the firm, and a member of its governing Executive Committee. His efforts contributed to the firms growth from slightly over $1 billion in assets under management when he joined, to over $12 billion in 2006. While at Manning & Napier, Richard earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the CFA Institute").

In August, 2006, Richard retired from the investment business to pursue a writing career. He has worked primarily as a freelance writer on a variety of business topics, while also writing manuscripts for three books.