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Keeping Your Debt In Check

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1We Are A Nation Loaded With Credit Card Debt

Did you know the average American home that has at least one credit card is sitting with nearly $7,000 in credit card debt? That’s according to online site creditkarma.com. And the average interest rate on that debt? Mid-teens, like 12 to 15 percent, at any given time. It doesn’t take a financial genius to know that making minimum payments will take you 20 years to pay that off, if you’re lucky and the crafty credit card company don’t change the rules on you. The first step in controlling your debt? DO NOT put any more money on your credit cards. Period

2Not All Debt Is Terrible To Have

You typically have to borrow to be able to afford to buy a house, or to pay for college. And that usually makes sense, because you are at least investing in something—a home, or an education—that will pay you back some day. But the lesson of the real estate collapse has been not to borrow more than you can afford to pay back. Also another lesson I hoped you learned is to shop around for the very best rates if you’re going to borrow. So again, I don’t advocate taking on a lot of debt. But remember, some debt is indeed good.

3Get A Hold Of Your Spending!

A lot of people spend thousands and thousands of dollars and don’t think a whole lot about what they’re buying. They just spend and spend until they’re out of money. You need to get a handle on your spending if you ever expect to get your debt in-check. Write down what you spend your money on for a month. And then cut back on those things you don’t need so you can put the saving towards any current debt you have hanging around like credit cards. Anything more saved than that, then put that towards your savings goals.

4Don’t Fall Into The Minimum Payment Trap

If you do, then you’ll barely pay the amount due on your credit cards and the interest you owe. And that means you won’t pay down any principal, which further means it will take years to pay off your balance… and even FURTHER, you’ll end up spending a lot more money–likely thousands of dollars more than the original amount you charged. No good. All I can tell you is that if you’re paying minimum debt balances now, look to ways to free up some cash that you can apply extra money on to the principal balance. Otherwise, you’re in a dangerous position if you just make minimum payments and you run into problems.

5Expect Things To Happen You Might Not Be Expecting

That’s right. And you should always have 6 to 12 months of living expenses banked. That’s because if you get in a bind, or you lose your job, the debt being held over your head—which, I might add may be secured debt—might end up tossing you into financial ruin. Most people run into serious financial challenges not because they have a lot of debt hanging around, but because their cash flow gets interrupted and they don’t have enough money stashed aside to pay the bills. So always expect things to happen that you might not be expecting. And have money aside to service your debt in the event it does.

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.