Best Debt Reduction Plan |
By Frank Jones on June 10, 2011
.jpg.aspx) Any debt reduction plan begins with a through assessment of your current financial situation, debts owed, debt to income ratio, and earning potential. This is because these are the only three ways you can effect your debt. The options are to negotiate your debt, change your debt to income ratio, or adjust your earning potential.
Debts Owed
When tallying your debts owed it is important to order them by interest rate and fees. Most people find themselves falling behind on credit card bills and medical bills when they begin to consider debt reduction. By paying the bills with the higher interest rates and fees first, you can speed up your debt reduction progress. Additionally, you will likely be able to negotiate some of these unsecured debts, such as credit card and medical bills, which will allow you to pay off your debt even faster. However, when considering your credit score it is important to remember that although settlements are better than defaulted debt, they are not as favorable as paying your debt in full. Also, you should keep in mind that debt negotiation services often don't deliver on their promises. It is often better to negotiate your debt on your own or with the advice of professional financial service providers and non-profit organizations in your area.
Debt to Income Ratio
Most people have relatively little control over their income and so it is best to work on the debt side of your debt to income ratio. This is because, although you could ask for a relatively small raise at work, it is unlikely that you took your current job knowing that you could earn more working somewhere else. However, it's much more likely that you could find ways to trim the fat from your current budget and devote more of the income you already have toward your debt reduction plan. This includes common things like going out to eat less often and cooking at home instead, planning trips and errands around your work schedule so you use less gas, or choosing low-cost and free entertainment options over high-priced concerts and movies. More exotic and long-term lifestyle changes may include moving to lower cost housing, trading your vehicle for one with better gas mileage, or accepting roommates. Each of these long-term options may need some upfront expenditure which will not result in any savings in the short-term. For this reason it is important to plan before making any decision on debt reduction.
Earning Potential
Another area which people can have some short-term and long-term control over is their earning potential. This includes relatively simple and quick options such as taking on an extra part-time or freelance job as well as more complicated and long-term options like enrolling in night school and continuing education courses. While you may have relatively little control over how much you earn per hour at your current job, you do have control over how many hours you work at multiple jobs. Unfortunately, this is not a viable option for the long-term. Most people can handle working 50 – 70 hours a week to get caught up on some bills, but doing this for more than a year can have harmful effects on your relationships and possibly your health. A more long-term solution is to acquire more training or education to qualify for higher paying positions in the future. The option that is right for you will depend greatly on what you find during your financial assessment and the goals you set for yourself.
|
Current Rating: 0 (0 ratings)