How to Get Out of Debt

In this our modern life, it is almost impossible that anyone has no debt. For most households, carrying some debt is unavoidable, and even desirable. But, some of us find ourselves are unable to dig out from under a growing debt burden that consumes an ever growing portion of our resources.

Many of us, Indonesian cardholder, now, have credit card debt more than half portion of our resources or even more. Credit card companies have made running up that balance deceptively convenient. What is lost when we are on that spending spree is the realization that paying off our debt can be costly, in terms of both cash on hand and our overall financial health. For some of us who can not manage them well then they become destructive for our financial health.

I have find some interesting English articles on how to resolve it. Here, I try to summarize and modify them without leaving their ideas:

Assessing Our Debt

How much debt is too much? The figure varies from person to person, several experts suggest, if more than 20% of our take-home pay goes to finance nonhousing debt or if our rent payments exceed 30% of our monthly take-home pay, we may be overextended. Other signs of overextension include not knowing how much we owe, constantly paying the minimum balance due on credit cards (or worse, being unable to make the minimum payments), and borrowing from one lender to pay another.

Some financial experts suggest us to take a number of steps we can follow to eliminate that debt and get ourself back on track. Working our way out of debt will, of course, require us to adjust our spending habits and perhaps be more judicious in our spending.

Begin With a Budget

The first step in eliminating debt is to figure out where our money goes. This will enable us to see where our debt is coming from and, perhaps, help us to free up some cash to put toward debt.

Track our expenses for one month by writing down what we spend. We might consider keeping your ATM withdrawal slip and writing each expense on it until the money is gone. Hang on to receipts from credit card transactions and add them to the total.

At the end of the month, total up our expenses and break them down into two categories: Essential, including fixed expenses such as mortgage/rent, food, and utilities, and nonessential, including entertainment and meals out. Analyze our expenses to see where our spending can be reduced. Perhaps we can cut back on food expenses by bringing lunch to work instead of eating out each day. We might be able to reduce transportation costs by taking public transportation instead of driving a car. Even utility costs can be reduced by turning lights off, making fewer long-distance calls, or turning the airconditioner off. The goal is to reduce current spending so that we won't need to add to our debt and to free up as much cash as possible to cut down existing debt.

Three Steps to Reduce Debt

Once we've got our budget settled, according to the experts, we can begin to attack our existing debt with the following steps:

Pay off high-rate debt first. The higher your interest rate, the more you wind up paying. Begin with your highest-rate credit cards and eliminate the balance as aggressively as possible.

Transfer high-rate debt to lower-rate cards. Consolidating credit card debts to a single, lower-rate card saves more than postage and paperwork. It also saves in interest costs over the life of the loan. Comparison shop for the best rates, and beware of "teaser" rates that start low, say, at 6%, then jump to much higher rates after the introductory period ends.
If you can only find a card with a low introductory rate, maximize the value of that low-interest period. By paying off our balance aggressively, we will reduce the balance more quickly than we will when the rate goes up.

Borrow only for the long term. The best use of debt is to finance things that will gain in value, such as a home, an education, or big-ticket necessities, like a washing machine or a computer, that will still be around when the debt is paid off. Avoid using our credit card for concert tickets, vacation expenses, or meals out. By the time the balance is gone, we'll have paid far more than the cost of these items and have nothing but memories to show for it.

By analyzing your spending, controlling expenses, and establishing a plan, we can reduce -- and perhaps eliminate -- our debt, leaving us with more money to save today and a better outlook for our financial future. (wid/from several sources and pic from photosearch.com)