Finance

How to Find Freedom from Financial Obligation

Having to deal with debt is one of the most unpleasant aspects of modern life. The problems that plagued previous generations are now a thing of the past. We don’t have to go on food-related expeditions because supermarkets are within walking distance. There is plenty of dry space around us; we have access to clean water and indoor plumbing. When you stop to think, you’ll realize that we’re living in the lap of luxury.

But the enormous D-word debt is the terrible stress that seems to be following so many of us around.

The tragedy is that we frequently bring hell upon ourselves by getting ourselves into debt, despite some genuine hardships. One contributing factor is that few of us learned about financial management or problem-solving in school. Since we are subjected to more temptations and prodding to spend than our parents were, we often follow in their footsteps or make matters worse.

One of the first things we should realize is that spending is one of the main reasons we can’t get out of debt. If we want to get out of debt for good, we must stop looking outside of ourselves for a solution and look inward at our shortcomings and poor behaviors. Unfortunately, this is the most crucial stage, but it is also the one most people skip.

Identifying the precise nature of the issue at hand should be your first step. Overcommitting our resources is usually the root of the problem. Our outlays exceed our income. The situation can be improved in one of two ways: either by increasing our income or tightening our spending. Although increasing your income may seem like a green light to increase your spending, the first step is to learn to rein in your spending habits.

Setting up a money management system, or just keeping track of every dollar you spend, is the first step toward finding your way out of debt. If you tend to spend a lot of money on minor items, keeping track of your spending may initially seem impossible. However, when you see your spending habits in black and white, they become much more accurate. That’s the first thing you must do to get out of debt.

The plastic wrap needs to go, too. Shred every credit card you own, save one, and by “one,” I don’t mean “one” for Friday night pizza and Saturday night drinks. If your automobile suddenly stops working and you must get to work, that’s an emergency! Money management and debt expert Dave Ramsey suggests a better approach in his best-selling book “Total Money Make Over”: put away $1,000 in an easily accessible but inaccessible emergency fund, even if it means selling your prized comic book collection.

The next step is to create and adhere to a budget acceptable to all household members. You should make a detailed list of your monthly expenses, including the obvious ones like rent, food, electricity, and transportation, but also include some “mad money” or fun money. Stick to it like glue now that you’ve hung it up where you’ll see it daily.

It’s past due that you start paying your bills. The best course of action is to compile all your outstanding debts and begin with the lowest ones. Put the money you would use to pay off one obligation toward the next one, and so on. Instead of slowly chipping away at the problem for years, this approach works almost immediately, and you can watch it disappear.

Even if you’ve tried the methods above without success, options are still available for dealing with your debt.

One option is to enroll in a consumer credit counseling program, where a third party will advocate for you and negotiate your debts with creditors, hopefully resulting in lower interest rates and less frequent visits from debt collectors.

A consolidation loan is the next logical step in finding a solution. A debt consolidation loan allows you to consolidate multiple unsecured debts into one large loan with a single monthly payment. This is one of your last resorts, but it usually yields the best interest rates. If that doesn’t work, you can always try settlement, a formal agreement to settle your debts for less than the whole amount owed.

Though you are getting money removed from your debt, you typically have to pay it off all at once to get the offer, and it still looks quite terrible on your credit report.

But it’s better than your other choices, especially bankruptcy. Filing for bankruptcy should be a last resort, and if you do so, you should consult an attorney, as bankruptcy laws are subject to frequent change.

Debt isn’t necessarily a lifelong burden if you can identify the causes of your financial difficulties and implement a management plan to alleviate them, such as the one I’ve outlined here.

CORE Magazine is where you should start if you’re looking for a way out of debt. Unsecured debt consolidation information is now available for free in our dedicated section.

linda