How to Deal with Debt

There are ways to conquer debt.

By FamilyTime


Chances are you have some debt. Maybe it’s your mortgage and your car payments, college loans or money you owe your folks. Or, perhaps you have significant credit card debt and face sizeable penalties every month.

Whatever your situation, no one likes being in debt. Sure, mortgage debt is easier to face than credit card debt. Some people opt to carry a mortgage for the tax credit. No one opts for credit card debt!

Face the Debt

Debt is a just a word. With some obvious exceptions, it’s manageable and should not consume your every waking hour. If you are as neutral and realistic about your debt as it is about you, it won't dominate your thoughts. But don’t push it to the back of your mind, either.

The best way to deal with debt is to sit down and figure exactly how much you owe. Next, calculate your monthly income and how much of that is earmarked for debt relief.

Financial experts advise that your debt-to-income ratio be lower than 40 percent; anything higher, they say, means you probably need professional help. There are numerous sites on line for figuring your DTI ratio; here are a two: bankrate and consumerfinance 

A Payment Plan 

Once you face your debt squarely, it's time to figure out how to pay it back. Most advisors will tell you to pay off the credit cards first.

Don’t fall for the minimum amount due; pay as much over that number as you can. For instance, if your balance is $2,500 and the minimum payment is $75, try to set aside at least $200 to $250 every month. Chip away at the balance — and while you are doing so, try not to use that or any other credit card.

Don’t neglect your other bills. You may feel great about tackling your credit card debt, but the electric company couldn’t care less. If you pay other bills late (even if you always pay them), your habits will come back to haunt you. Payment practices represent 30 percent of your credit score.

Take full advantage of online payment plans. When you schedule your payments on the computer or smart phone, they won’t be late. The online service won’t run out of stamps or forget to mail the checks.

Use the online resource provided by your bank or rely on the automatic payment option from utilities and other businesses. Once you’re set up, slotting in the amounts is easy and very reassuring.

Don’t Accrue More Debt

Now is not the time to live the high life, nor is it a time for glum penance. Keep living your life but get rid of some frills or more serious expenses. Carry cash and use it in place of a credit card. Leave your ATM card at home when you go out for the evening.

Forgo those little treats you may have come to depend on such as lattes, bottled water, deli sandwiches, and valet parking. Think about cutting back or eliminating your cable service. Use the library for books and DVDs (yes, old-fashiones but reliable!). Run on the road rather than on a gym’s treadmill. Cook at home instead of relying on the drive-thru or take-out.

Finally, start saving. It may sound ridiculous to think of saving when you’re trying to get out of debt, but if you put aside even $50 or $100 every month in an account where the interest is compounded, you will, over the years, build a welcome nest egg.

And last but not least, try not to rack up debt again. Given the nature of our economy, you may never live a debt-free life but you can be sensible about how you spend your hard-earned money.