How to Avoid Escalating Debt

Debt is a heavy burden, especially when it rapidly increases

If you have monthly student loans to pay off, loans for your house or car, or other debts weighing you down, then you know the feeling of being strapped for cash. Large loan payments can mean not having enough cash for rent, utilities, entertainment and other day to day expenses. And for many folks, that means living off of credit cards, which quickly piles on more and more debt. It's a vicious cycle, and can mean serious financial trouble. Here's how to avoid escalating debt.

Difficulty:

Moderately Challenging

Instructions

1. It's Payback Time! Student loans, mortgages, car payments all have a bad habit of coming due.

   ***Reduce the monthly payments for your current loans***

   If you're carrying several loans at once...especially student loans...a lender may be able to offer you a consolidation loan. This is a way to replace several separate loans with one loan, and one single monthly payment, often at a reduced monthly cost. You won't necessarily lower your overall amount of debt this way, but you can lower your monthly payments.

2. ***Refinance your home loan***

   Refinancing your home mortgage can lead to lower monthly payments. As with a consolidation loan, a refinance doesn't lower your overall debt, but it can lessen your monthly payments, and soften the blow when it comes to cash flow each month.

   The Resources section has more information on refinancing.

3. Make a list. Check your monthly expenses and look for ways to spend less and save more.

   ***Reduce your expenses***

   Well...Duh! But while this sounds so common-sensical, it takes attention and discipline to make it happen. Sit down with your bank and credit card statements for the past six months and figure out where your cash goes...a personal finance program like Quicken can make the job easier.

   Detail your spending. How much on restaurants, movies, clothing, travel, etc. For each expense, ask yourself: "Did I really need that?" Learn where you can cut back. It may not be pleasant, but it's better than facing personal bankruptcy down the road.

   Concentrate on discretionary spending, but don't ignore your "essential" expenses. You may be able to lower house, car or health insurance costs, for instance, by opting for a higher deductible.

4. A part-time job brings in extra cash. It can even be fun.

   ***Increase your income***

   Another big Duh!, but exploring your options can give you enormous flexibility. A friend takes temporary, part-time, holiday season jobs. This provides cash for Christmas shopping, and keeps him from getting over his head in debt. One or two nights a week waiting tables can bring in an extra $1,000 a month -- enough to make a big dent in managing your debt.

5. ***Consider Getting Help***

   There are a number of organizations and companies that claim they can negotiate lower monthly payments for you. I have no direct experience with these, so can't recommend them outright, but a commercial firm called Freedom Debt Relief has a decent reputation. They say there are no fees unless they actually save you money by reducing your debt. Similarly, a non-profit organization called InCharge also has a good reputation in the field of debt management.

6. ***Keep Informed***

   The Resources section includes some very useful sites on managing your debt.

Tips & Warnings

• Warning: Reducing your monthly costs for loans can still mean paying more overall in the long run if your loan period is longer. Make sure you clearly understand the terms and requirements of your loans.

Resources

• Loan Consolidation (Student Loans)
• Loan/Debt Consolidation (All Kinds)
• Money 101--Managing your debt
• Making a Household Budget
• Need more info? Try a professional research service
• Refinancing information
• Freedom Debt Relief (article)
• Freedom Debt Releif (homepage)
• InCharge Debt Solutions (non profit)
• Learn how to earn $1,000 a month (or more) at eHow