A Time of Need: Some Easy Debt Management Strategies

debt management strategiesEach year, Americans pay more than $100 billion in credit card interest and fees. That money does not touch the debt itself, so the interest and fees keep coming. Such high-interest indebtedness is very convenient. All you have to do is swipe the card. Over the long term, however, such payments simply are not sustainable.

A debt consolidation loan is a good way to help. But be sure you go with a reputable and experienced company. Other “debt reduction” or “credit repair” companies may do little more than make big promises and take your money. There are also some very practical ways to help your family erase burdensome debt.

The U.S. Department of Justice's Credit Counseling and Debtor Education Information website is a great place to start if you are interested in learning more about the topic or are looking for an approved credit counseling agencies.

Increase Income

Ask your employer for a raise. The worst possible outcome is a negative answer. If you can show your boss what you are worth in the open labor market, there is actually a good chance your employer will say yes. Even if the answer is still no, at least you and your employer have a better idea of what your compensation should be.

Use your own judgement when it comes to the “why” behind your request. If your boss knows the need, your boss may be more sympathetic to your request. There is no need to go into detail. Simply say something like your expenses have suddenly increased and you are afraid the stress is taking focus away from your work.

In other cases, sharing this kind of information may be a mistake. For one thing, your boss simply may not care. Or, your admission of financial problems may place you on a watch list for future adverse action.

Many people freelance for extra income. Monetize the things you enjoy. Admittedly, there are not very many openings for sleeping late and watching TV. But if you like cleaning or landscaping, become a housecleaner or professional landscaper. If you like children, work at an after-hours daycare. If you like writing, become a writer. You get the idea.

Reduce Expenses

A higher income might actually hinder debt reduction efforts if the extra money is just more money to spend. To find financial discipline, many people use a budget. Other people do better with more practical solutions, such as:

  • Increase Withholding: Less money in your paycheck usually provides excellent incentive for financial discipline. That attitude must extend to your tax refund as well. If you blow it instead of use it to pay down debt, the whole exercise was a waste of time.
  • Contribute to a 401(k): The same principle applies to voluntary deductions. In fact, upping such contributions might be an even better idea than increasing withholding. You are not just making an interest-free loan to the government. Like the IRS really needs more of your money.
  • Make Small Changes: Eliminating things like coffee runs and restaurant lunches goes a long way over time. It’s okay to splurge occasionally. Just go down to four or five double tall four-pump mochas per month. Start small and immediately set aside your savings so that these can be used to pay down your debt.

Follow these two steps, and your extra money will go even further than before.

Make Smart Payments

There is still one step to go. When you pay off one debt, celebrate with a night out or some other splurge. Then, shift the extra money to another debt. Start with high-interest credit cards and other debts first, then work your way to mortgages and car payments.

Take some time to work on becoming debt-free. You’ll be surprised how easy it is to become financially independent.

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