Question:   I want to pay my debts! What are the key steps to reducing my debt?

Answer:      When a recession is in full swing, people across the country start asking themselves, “How can I pay my debts off fast?”

It can seem daunting and even frightening when you owe any large sum of money, whether its a mortgage or a credit card. First, take a deep breath and calm yourself. You can do this; it will, however, take a little organization and careful planning.

Let’s do a little self pep-talk to get you through the basic steps of taking care of your debt.

“I can do this. I can pay my debts. I have what I need.” Even if it seems like you don’t have what you need, sometimes a little restructuring can go along way toward getting traction over the problem.

Look into creating a personal financial statement. This will give you a clearer picture of the issue at hand. You’ll be able to see your finances on paper, organized, and in a format you can understand.

Better to know how much money is currently going to certain areas of your life. Know how much you take in each week from your job; how much you save, and so forth.

Instead of having an abstract idea of how much you have in the bank, you can use information from a personal financial statement to more effectively allocate how future funds will be spent.

“Do I really need that grande mocha cappuccino every morning?” Once you know where your money is going, you can create a budget that will help you in your “Pay My Debts” plan.

Cutting away wasteful spending is a great start because that money adds up much quickly than you’d expect. Avoiding a $4 coffee every morning saves you $28 every week, around $112 each month. If cutting out an item entirely feels too painful, then at the very least cut it in half. Every little bit helps, and it adds up fast.

In addition, you must leverage every opportunity to save or cut costs. For instance, calling your credit card company may be all that is necessary in order for them to lower your interest rate.

Chances are, if you haven’t defaulted on your payments, they may lower your interest in order to retain you as a customer. In fact, you can call every year and find that you’ve whittled down your interest rate to single digits.

As quickly as possible, start paying off smaller debts first, as this will give you the momentum that will keep you pressing forward to a debt free life.

“Look! I’m starting to pay my debts and I’ve made a dent!” Good! Now keep going!

Tackle your smallest debts first, and every time you pay off an account just add that money toward the next. Essentially, you’ll be creating the snowball effect. While you’re working on that task, give yourself a little extra cushion by creating an emergency fund.

Sneak a bit of money into this account every week or month (depending upon your budget plan). Not touching a penny of this money otherwise will give you extra shielding should any adverse circumstances occur and you need the cash quickly. This also saves you from having to borrow more and putting yourself back where you started.

» What does the IRS count as taxable income?
Learn the specifics about employer; tips, odd jobs, interest income from savings and investments, profit from the sale of investments or real estate, etc. Know which items must be considered as taxable income.

» Of all the important financial principles, which one should be weighted most heavily?
Living debt free is critical to your happiness, which is the number one “life” principle.

» What’s the difference between debit cards and credit cards?
You never have to pay off your debit card, but you are always dreaming of paying off credit cards. Debit cards only spend money that currently exist in your checking account.

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