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Cut miscellaneous expenses first
A financial planner who was asked to help the couple recommended that the family begin decreasing its miscellaneous expenses as these were running to $30,000 a year. She further advised them to pay off all their credit card debt in the next five years. They were told this would be their best investment, as it would generate a rate of return on their money about equal to the interest rates on their credit cards.
Consolidate their debt?
The financial planner also told the couple to think about consolidating all their debts. She pointed out that there are many benefits to this such as paying off their credit card debt at a lower rate of interest, consolidating numerous bills into a single one that would be more manageable, and reducing or eliminating late fees and over-the-limit charges. Plus, this could help their credit scores and make it easier for them to refinance their four mortgages and at lower interest rates.
Why the debt?
There are two kinds of debt incurred by most families. The first kind can be the results of an "investment" that is long-term such as a car or house. The other is “recurring debt” and is due to the fact you're spending more than you earn. In this case, you're really spending future income for things such as food and vacations.
Learn where you money's going
If you want to get out of debt the first thing you should do is sit down, review your debts and divide them into two columns - long term investment debt and recurring expenses. You should then analyze those recurring expenses to see how you’re spending your money. The best way to do this is with a money management program. There are many available. Some of them, such as MoneyStrands and Mint are available online. Or you could choose a desktop budgeting program like iBank4 for the Mac or MoneyDesktop.
Where to make cuts
Once you understand your recurring expenses, you can figure out where you can make cuts to reduce your spending. Some of the money you save could be used to help pay off your credit card debts or a personal loan. It won't be easy and you may have to make some sacrifices. But just think how much better your life would be if you could get out from under all those debts.
A debt consolidation loan
You might also consider getting a debt consolidation loan. As you have read, it can be a good way to pay off your credit card debt at a lower interest rate, Plus, with a debt consolidation loan, you would need to write just one check a month, instead of all those you may be writing now.
The two types of debt consolidation loans
There are secured and unsecured debt consolidation loans. Your mortgage is a secured loan because your house, serves as collateral to secure it. A second mortgage or homeowner’s equity line of credit is also a secured loan. Unsecured loans are just that - loans where you are not required to provide an asset as collateral. They are often called personal loans and generally have higher interest rates as the lender is taking more of a risk than with a secured loan.
If a debt consolidation loan won’t help
If there are reasons why you either can’t or don't want to get a debt consolidation loan, there is a good alternative called debt settlement or debt negotiation. We have helped hundreds of families save thousands of dollars and get completely out of debt in 24 to 48 months through debt settlement. If this sounds like it might be a good idea, go to our home page and fill out the free debt analysis form.