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The Money Prof
Monday, April 1 2013
Want to get out of Debt?Borrowing money and incurring debt can be very productive, but if mismanaged can lead to dire consequences. The Federal Reserve reports that as of the end of 2012, families with credit cards owe an average of $15,266; mortgage debt $149,667; and average student loan is $32,559. Overall consumer debt in 2012 declined by 1.5%, but student loans skyrocketed by 11.2%.
There are many reasons for indebtedness, good and bad, but this article will provide a few ideas to help you get out of debt. The type of debt to pay off first (bad debt) are those loans that carry the highest after-tax interest rates: credit cards, auto loans and personal loans usually carry high interest rates and not tax-deductible. The interest on real estate loans, student loans, and business loans are tax deductible. Secured loans (home mortgage loans, auto loans) should in general, be paid first because if payments are in arrears, the lender can take the property back. To get out of debt, borrowers must find a way to pay down principal in an effective way. If possible, reducing the term of the loan, which generally requires higher monthly payments, will cut down on total interest paid on the loan. Consolidating loans may lower your monthly payment, but will not get you out of debt and may in fact, result in more interest in the long run. The first place is to develop a budget and list all your monthly expenses. Make sure you include everything you spend money on, especially cash transactions which may add up to quite a bit of money each month. Then separate out the necessary (non-discretionary) expenses from the not-so necessary (discretionary) expenses. By reducing the discretionary expenses and finding ways of reducing your non-discretionary expenses, you will have more funds to apply against your loans, thereby reducing principal. Of course, getting a higher paid job (I know this is a lot easier said than done, but possible) or more possible, getting an additional part time job for a period of time, can reduce debt, as higher payments are made monthly.
Increasing debt payments monthly certainly places a claim on your future income which can impact on your quality of life. However , if it is done on a temporary time frame, the feeling of reducing debt usually is a good mental tradeoff than the extra work time. Another strategy to reduce debt is to rent out part of your primary residence. This is not for everyone, but if you are willing to give up some convenience, the extra funds can come in very handy. The important thing, is not to give up, but know that you can get out of debt if you change your priorities and really want to improve your lifestyle.
The GOLD COMPANY will help you achieve financial well being.
Offering the following services:
- Investment Portfolio Assessment
- Portfolio Development
- Securities Portfolio Management
- Retirement Planning
- Insurance/Risk Management Review
- College Planning
- Real Estate
- Estate Planning
- Business Analysis