How to Reduce Your Debt Strategically and Legally

For many Americans reducing their debt is one of the top five priorities they have to improve their life. This has become a top priority because many of them find themselves in debt mostly due to the financial burden of hospitalization, financial burden of a funeral, financial burden of a business or business investment, financial burden of buying a home, the financial burden of a divorce or the funding burden of paying for college loans, according to Free Money Finance in an article entitled “Top 10 Causes of Debt.” The question is why? Americans more than ever want to change their lives and improve their credit, so that they can get bank accounts, buy a home, get a credit card, avoid divorce and bankruptcy, according to Stuart Laing of iReprint.info Free to Reprint Articles in an article entitled “Five reasons to Get Out of Debt.” In this article, I will go over some of the techniques that I used to get out of debt and what techniques that I am still using today.

Difficulty: Moderate

Instructions

1. 

   STEP ONE: KEEP TRACK OF YOUR FINANCES
   
   This step is very important because many of us just simply spend money without regard for where it is going and on what. For instance, Johnny may work at McDonald’s from 5-9pm Monday through Friday and 12-8pm on Saturday and Sunday. At $7.25/hour, Johnny is making $261 gross and $196.75 net after taxes. But, Johnny spends most of his time buying silly things like games for his PlayStation 3 at $40 to $50 each as well as going out to eat at take out restaurants four times a week utilizing another $40 to $50. To top it off, Johnny then uses the rest of the money buying snacks, drinks, and other frivolous stuff. By the time Johnny is through, this is his budget every two weeks:
   
   Johnny’s budget:
   $196.75 bi-weekly
   -120. 00 three games for PlayStation 3
   - 40.00 four restaurants a week
   - 36.75 snacks, drinks, and frivolous stuff
   
   0.0 left
   
   After looking at Johnny’s spending habits, it is clear that he is in need of guidance. First, he is wasting his money on games; second, he is eating out too much, so he will eventually put on weight and become obese; third, the junk that he is buying will more than likely be stored in his room or in his closet, therefore, he will have roach, ant, and other insect problems as well. Seriously, Johnny is wasting his time and his money. Instead of the spending practices he is implementing, these suggestions are what he should be doing with his money every two weeks:
   
   
   Johnny’s budget:
   $196.75
   - 50.00 Future car fund
   - 80.00 Future house fund
   - 30.00 Rain day fund
   - 36.75 spending money
   
   
   0.0 funds left
   
   According to this amended budget, if Johnny saves his money in this manner and does not waiver for every two weeks, twenty –six times a year to the next ten years, Johnny will have the following saved:
   
   Johnny’s budget:
   $50 * 26 pays per year * 10 years = $13,000 Future car fund
   $80 * 26 pays per year * 10 years = $20,800 Future house fund
   $30 * 26 pays per year * 10 years = $ 7,800 Rainy day fund
   $ 41,600 money saved
   
   In looking at the two budgets, which one affords Johnny a future free of debt? If you picked the second, you are correct. It is a clear cut design of what Johnny’s money should be spent on. It is ideal to think that Johnny will be working at McDonald’s for ten years? No Of course not. But, it is likely that Johnny would keep this plan and save money even if he left McDonald’s? Yes. By keeping track of where

2. 

   STEP TWO: AVOID CREATING ANY NEW DEBT
   
   Stuart Laing of iReprint.info, who in his article entitled “Five Reasons to Get out of Debt”, said avoiding new debt keeps your current financial problem from ballooning or getting worse. It allows you to control you current debt problem by setting parameters of where to attack it. In my case, my debt was mostly bank and credit cards statements, store cards, and debts created for necessities, such as storage for personal property, life insurance, and rent and telephone. All of these expenses were unfortunately compounded when I added $7,000 in college loans to this current debt. Now, with over $10,000 in debt, it is going to take me at least ten years to eliminate this debt. In not heading the advice, that I am giving you now, I find myself in this current debt crisis. Therefore, if you have one credit card, do not get another. If you have a bank account, keep it open. If you have mutual funds, continue to add to them on a regular basis. Make better decisions with the money that you make so that the money that you will spend does not burden you.

3. 

   STEP THREE: PAY DOWN YOUR DEBT STRATEGICALLY
   
   Paying down you debt is a serious responsibility. If you do not pay it down, it will continue to burden you through out your life. Here are some techniques I used. First, I increased my will power to not be controlled by impulse buying. According to Jeremy Vohwinkle at Financial Spending at About.com, whose article is entitled “The Psychology of Spending,” the urge to splurge or spend comes from feelings of unfulfilled emptiness brought on due to media perceptions of personal identity…which leads to feelings of limitedness, whereby spending becomes the help aid to bring about a psychological uplifting and social actualizing agent.” In other words, spending money is identified with the glamour, glitz, and glory of celebrity stardom mixed with media hype. To add to that, persons who spend a lot associate their spending with who they are as people. Their social and personal identity becomes so locked into their spending habits that they do not realize how every item that they buy is a cry for attention as well as their need for recognition, and respect. When I realized that I fit this category, I immediately stopped going to my favorite store A Dollar in Mondawmin Mall, a place I would go to and spend thirty dollars or more every time I went in. I only go there now for my needs and nothing more. Certain stores like Dollar Buys and Family Dollar are famous spending traps because without knowing it, you can spend a lot more than you expected. But, the bottom line is, saving that money that I used to spend frivolously at A Dollar and using it to pay my expenses has allowed me to eliminate four credit card debts: Citibank, Providian, HSBC, and Wells Fargo. However, sadly, not listening to step two has added several new credit card debts to my financial issues: Aspire, Capital One, and Credit One.

4. 

   STEP FOUR: PAY DOWN YOUR DEBT LEGALLY
   Many of us often find ourselves involved in illegal activities to make ends meet, even to make them get over. Several friends of mine have admitted to me that they deal drugs, sell products that they buy at stores without an official merchant’s license, and some even sell fraudulent and bootleg copies of CD’s, tapes, and DVD’s. Now, I am not revealing the names for these persons, but I am saying that to avoid possible criminal charges or conviction, paying down your debts the legal way requires that you pay them down the right way. If you want to sell these items, first get permission and authorization. This means going down to City Hall and getting a merchant’s license. This means working in a pharmacy. This means buying or investing in a franchise that sells the products that you want to sell. If you do this, then you will not have to worry about criminal infraction. But, let’s be honest. Most people that I know are not going to do these things because they do not trust the persons they would have to talk to about these things. They also can’t afford the fees for a franchise or a merchant’s license. Finally, many of them do not see the purpose in rewarding a system who already bleeds them without excessive taxes with more taxes, when they are trying to make a little money tax free. My final word on this is payday loans. I mentioned this in another article. I mention it here because this is another way people who work can stretch their paycheck and pay down debts that have become a serious financial burden to them. As I mentioned in the last article where this suggestion was used, please be aware of your current financial situation and your ability to pay the payday loan back before you acquire one. All in all, if you follow these steps, you should eliminate your debt gradually without having to go to extreme or illegal measures to do it.

Tips & Warnings

• Be responsible for every dollar you spend.
• Ask yourself why you are spending and what you are spending, and who you are spending it for.
• If possible, use debt managers and debt management systems to correct your debt.

[luv2blog]

on 8/25/2008 Good information. Well written.

[llnair2006]

on 5/14/2008 Great info. Thanks