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Overspending is one of the biggest bugbears for any individual or business. When finances are not managed well, pervasive debt ensues. Financial advisors routinely face the question: How Do I Get Out of Debt? Simply put, getting out of debt requires doing everything in reverse. This contrarian perspective is being adopted by many financial planners and consultants when they counsel clients with money problems.
Liberal spending patterns typically result in overspending. The only way to effectively manage finances is by setting up a budget and sticking to it. The art of being frugal is not simply forgoing all of life’s pleasures and expenses – it is maximizing utility levels by minimizing costs.
When it comes to debt management, debt reduction or debt alleviation, there is no shotgun-style approach that works for everyone. All options need to be evaluated on their merits. The most common reaction from clients who find themselves in a difficult financial predicament is denial. There simply is no justification for maximizing expenditure well beyond your means. Many people believe that access to credit is an invitation to maximize credit utilization.
In fact, the reverse is true. It’s good to have access to credit, but this privilege should never be abused. Whenever credit utilization ratios reach untenable levels, the interest repayments on that debt are going to spiral out of control. Many folks who are in debt routinely make excuses about how to justify their expenditures. Financial consultants dissuade this type of thinking by promoting fiscal responsibility.
Why Are People in Debt to Begin with?
If jealousy is the green-eyed monster, lines of credit will grease the wheels to satiate your emotional pangs. We live in an impulse-driven culture where wants trump needs every single day. Bad money habits are a problem that too many people are prone to. Many people dream of being financially responsible, but their expenses are simply spiraling out of control. Credit cards are often cited as the number one reason for increasing levels of household debt.
Plus, credit cards are associated with high interest rates, which means that you’re paying interest on your interest when balances rollover from month-to-month. With central banks now looking to pull the trigger on interest rates around the world (The Fed, Bank of England, Bank of Canada, European Central Bank), credit card debt, personal loans and business loans are going to be costlier.
One of the best ways to reduce credit card expenditure is by using good old-fashioned cash money. Financial advisors recommend that clients try this for a few days, weeks or a month at a time to limit their expenditure and take some of the heat off their credit card bill. With credit money, the customer does not have a sense of personal loss. Since it is the bank’s money that we are using and repaying, there is less urgency involved.
With cash money, it is a clear liquid asset that will be diminished if we spend it. It is far easier to budget with a cash bankroll than it is with credit cards. By actively managing a cash bankroll, clients soon learn the value of that money. On that topic, it’s important to live within your means.
Workable Solutions to Debt Problems
When you are trying to get on top of your finances, you will want to live according to a budget. Lifestyle choices routinely break the bank – too much expense translates into debt. Fortunately, there are several workable debt consolidation options available to clients. Depending on the level of debt that you currently have, you can choose a debt consolidation loan to aggregate all your debts into a single loan at a lower interest rate.
Official data indicates that the average American household is in debt to the tune of $134,643. This debt is comprised of student loans, mortgages, automobile loans, credit card debt, personal loans and the like. Debt consolidation loans mean that you can consolidate (put together) all of your outstanding debt and pay less every month. This makes it far easier to manage overall debt levels and slowly start digging yourself out of that financial black hole.