Managing Household Debt

Many people are of the opinion that people who end up with insurmountable debt are irresponsible and only find themselves in that situation because they have made poor financial decisions in life. Although this may be true in some cases, there are many more cases where our spiraling debt is as a result of us being dealt a bad hand in life that we do not have much control over. Many hard working individuals with all of the right intentions sometimes just fall on hard times. The loss of a job, ones own serious health condition or the serious health condition of a loved one, student loans, ballooning mortgages, the death of a loved one, are among some of the main reasons where unforeseen circumstances lead us down the path to debt crises.

So what do you do when you have been dealt a bad hand? For many people we have to make a mental shift to move ourselves from where we are to where we need to be. I have spoken to so many people who know that they need to do something but feel so stuck that on their own, they see no way to get out of the vicious cycle that they have found themselves in. For those of us who have taken on our debt burdens and have made them more manageable, we tend to look at these people as irresponsible. Unfortunately, there are many people for whom debt management is not a priority.

They see it as a necessary evil. They go about spending on their credit card as if there were no end and are quite content to not make payments and dodge those debt collectors. On the other hand there are those who try to take a more responsible approach. Instead of dodging the debt collectors they religiously make only the minimum payments on their credit cards every month and still continue to spend as of there were no end. Credit card companies love those people who make minimum payments on their cards. Every time you make the minimum payment you pay the interest only on the card and you still owe the card company all that you have borrowed. What does that mean? It means that for as long as you keep on spending and making the minimum payment you keep the credit card companies in business. Something else to be mindful of is that there is a benefit to those who make minimum payments. It is called your credit scores. Yes, paying the minimum on your credit cards will keep you in good standing and your credit scores will improve. You will receive more offers from other credit card companies because you are not at risk of default and do you see what is happening? The cycle continues…

Now that you have all of this information and you are wiser about how you got there, how do we fix the situation? Below are a few simple things that you can do to change your situation. I know a lot of people who were serious about reducing their level of debt and have applied some of these techniques that actually work.

  1. Make a commitment to get rid of your debt and stick to it
  2. Identify all your debt. Make a list of everyone you owe whether individual or institution
  3. Write down the amount you owe and the interest rates on all your debts
  4. Take note of the minimum payment that you must make on all of your debts
  5. Decide on whether to pay off the debts with the smallest balances first or whether you want to pay off the highest interest rate debts first
  6. Put your plan in to action and stick to it
  7. Apply any extra income you have to paying off the first debt on your list
  8. When the first debt is paid off, add the funds you were paying on that debt to the next one on your list
  9. Keep repeating the process until all your debts are paid off
  10. Enjoy the financial freedom when all your debt is paid off from following these simple steps.