[BUSINESS] Managing One's Debt
- Managing your debt
Following these simple steps will help put you -- not your bills --
Outside of fixed monthly bills such as your housing or car payment,
you probably don't have a precise idea of how you spend most of your
If you want to get your debt under control, start by figuring out
your spending patterns and identifying unnecessary expenses.
For one month, write down every cent you spend -- including that $2
cup of coffee that starts your workday or that $4 magazine you buy on
a whim. This will clarify in black and white how much of your
spending is fixed and how much is variable (and hence easier to
Tally the expenses on the list and compare the sum to your monthly
How much do you bring in after taxes? How much do you have left at
the end of the month after paying fixed expenses? How much do you
spend on variable items like that $2 cup of coffee every morning?
Consider, too, whether there's any way to boost your take-home pay.
If you get a big tax refund every year, that means you're having too
much withheld from your paycheck. If that's the case, you can reduce
your withholding by changing your W-4 at work.
Next, make a list of all your debt obligations and the interest
you're charged for each.
Once you've done all that, you're ready to start lightening your debt
The basics of debt reduction are simple: Cut down on your variable
spending and put the extra money toward your debt payments. Once you
determine the maximum amount you can pay off each month, pay down the
debt with the highest interest rate first -- that usually means your
credit card balance -- while paying at least the minimum monthly
amount due on all other revolving bills.
Once the debt with the highest rate is wiped out, put your money
toward paying the debt with the next highest rate. One exception: If
you have a credit card with a low teaser rate that will go up after a
fixed amount of time, strive to eliminate that balance before the low
You might also consider moving some of your high-interest credit card
balances to a card with a lower interest rate. But read the fine
print on any invitation to transfer balances. Sometimes such low-
interest-rate offers are only in effect for short periods of time,
after which the rate skyrockets. What's more, consolidating your debt
on one card may lower your credit score if your debt-to-available-
credit ratio worsens.
For many people, reining in discretionary spending for a few months
goes a long way toward tackling debt. But if that's not enough, try
to reduce your fixed expenses. Take steps to lower your household
bills; refinance your mortgage to get a lower interest rate; or, if
you have a good payment history, ask your credit card company to
lower the interest rate you're charged.