DEBT MANAGEMENT » Get out of Debt

It's the first month of the year - you have built your personal budget in a spreadsheet and now see where you need to cut your expenses to get back on track. You already planned on making your own coffee at home and bringing lunch to the office, but the big one for you is trying to manage the huge credit card debt. A good way to manage your debt is by consolidating your loans and seeking assistance from a professional who will help you with your financial goals and set your finances straight.

Of course there are companies that specifically target debt consolidation loans as part of their business plan. However, many of these businesses are in it for the money - so seek out a credit counselor working for a non-profit agency. If not, make sure they have good reviews.

If you are a homeowner looking to secure a debt consolidation loan, you can tap into a home equity loan or get a HELOC (Home Equity Lines of Credit). The money you can take out is based on the amount of equity you have already built into your home. With that you can get a tax deduction on the loan up to about $100,000. This is considered a secured loan so if you default on your loan payment, you risk losing your house.

Another source option for debt consolidation is taking a loan against your 401K or retirement plan. Although you risk losing a chunk of your savings - the interest rates are moderate, because you're basically borrowing your own money.

You can also choose to borrow against a life insurance policy, take a personal loan, or even borrow some money from friends and family. Regardless of the debt consolidation loan source you choose, make sure to weigh the pros and cons. Then plug the numbers into your spreadsheet and take it from there.

If someone asked, "How frugal and responsible are you?" how would you respond in all honesty? Do you put aside 10% of your income? Do you have an IRA or a 401k? If so, how much do you put into it? How much do you spend on stuff you want, versus stuff you need? Everyone will have a different answer to that question, of course, but for the most part, most of us don't save as much as we should, and sometimes it's simply hand-to-mouth. There are ways to cut corners, of course, but sometimes the best way to change our spending habits is to change our perspective. One way to do that is by embracing the concept of "pay yourself first." "Pay yourself first" is a slogan, of course, but if you actually embrace it you will be putting yourself on a firmer financial footing.

"Pay yourself first" is a pretty easy concept to understand: basically, when you get paid, treat yourself and your long-term goals and security as you would any other creditor. So, rather than paying off all of your real bills, and then spending the rest, "pay yourself first" and you'll be developing a very good habit that will benefit you immensely in the long run. People who embrace "pay yourself first" will make deductions from their paychecks automatic and automated. They will make more mortgage payments than they have to (if they can). They will remain at the same standard of living should they get a raise it's so easy to think you can upgrade to a new and more expensive apartment, for example, when you get a raise. You can, of course, but your margin of savings remains as thin as ever, whereas a bump in revenue with your outlays remaining the same could really let you get ahead.

To learn more about "pay yourself first," be sure to consult with a financial advisor or other money manager so that you can pay yourself and your dreams, goals and future security first.

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