Get Back on Track with Budgeting Bootcamp

5 Lessons Learned from the Recession

How Much Debt Is Too Much?

Debt Consolidation 101

Reasons NOT to Hire a Lawyer to Settle Your Debt

Taking Control of Your Debt

Three Steps to Debt Relief

Debt Consolidation Facts

What are the Main Causes of Debt?

Debt Myths

How to Secure Your Finances

Debt consolidation is a great first step to gaining financial stability. To become debt-free and stay that way, though, you’ll want to supplement debt consolidation with some steps of your own. We’ve put together this how-to guide on securing your finances to help you in that process.

1. Assess your debt.

   The average household in the U.S. carries about $9,000 in credit card debt. How much debt is too much, though, will largely depend on the individual. If more than 20% of your net income goes toward non-housing debt, then you might be in over your head. Similarly, if you spend over 30% of your net pay on mortgage payments or rent, you might be overextended. Other red flags that you might be in over your head in debt are not knowing how much you owe, consistently only paying the minimum, and/or borrowing more money to pay off existing loans.

2. Start with a budget.

   Finding the source of your debt is the first step to eliminating it. To do this, you’ll need to figure out exactly where your money goes. For one month, track everything you spend and earn by writing it down. Keep receipt for transactions, ATM withdrawals, paystubs, etc. to make tracking easier. After doing this for a month, break your expenses down into necessary and unnecessary. Necessary expenses would include food, rent, utilities, etc. Unnecessary expenses are things like entertainment expenses and eating out. Figure out ways to reduce both types of expenses.

3. Pay high-interest debt first.

   Your money is best spent if you’re taking care of high-interest debt first. The money you will save by avoiding costly finance charges down the road will be considerable and will give you more cash to pay off your other debt. Take your debt with the highest interest rate and dedicate yourself to paying the most that you can toward it per month.

4. Convert high-interest debt into low-interest debt.

   The easiest and best way to do this is, of course, debt consolidation. All of your high-interest debts will be combined into one, low-interest loan. This will save you a bundle on interest charges. Another option is to transfer your high-interest credit card balances to lower-interest cards. Some cards offer attractive 0% APR balance transfer offers that can buy you some time to pay off the debt, interest-free, for a while.

5. Borrow money for long-term expenses only.

   Debt is most wisely used when you are investing in things that will accrue value, such as a home or an education. A good rule of thumb is not to go into debt for something that won’t be around once you’ve paid the debt off. For instance, you don’t want to use debt on things like vacations, eating out, tickets to events, etc. Make a goal not to borrow unless it’s for an important, big-ticket item.