How To Start Reducing Debt
Many Americans still have too much credit card debt. They also are not sure how to begin reducing that debt. Many Financial Advisors will give you suggestions on how to reduce that debt but have you failed each time you try to follow that advice. Here are some tips that you can try:
- First determine your disposable income ‘“ multiply your take home pay by the number of pay periods in one year. Then divide that number by 12. This will give you your monthly net income.
- Compile your monthly expenses ‘“ use your fixed expenses to start with. Fixed expenses are bills that are the same each month. Things like your mortgage, car payments, insurance and any other bills that are the same each month. Now list your other monthly expenses. Things like your phone bill, your utility bill, and any other bills that you have each month. Add the total of your fixed bills and your other monthly expenses to come up your total expenses.
- Take your monthly income and subtract your total expenses ‘“ us will give you your disposable income. Your expenses are more then your income you will need to reduce your expenses. Your disposable income is what you have to spend each month on you or your family. This is also where you can begin to reduce your debt.
- Depending on the amount of your debt should determine how much of your disposable income should be used. The higher your debt the more income you should apply. You want your debt to be less than 30% of your available credit. For example, if you have a credit card that has a credit limit of $1000, you want a balance of $300 or less. Apply that example to each of your credit accounts.
- Don’t use all of your disposable income each month to reduce your debt. If you use all of your disposable income on your debt you will soon give up reducing your debt. I suggest using no more than 50% of your disposable income to reduce your debt. This will allow you to still have some fun each month. But if you use all of your disposable income you won’t be able to enjoy your life each month. This will adversely affect you and your family and will probably lead to failure in reducing your debt.
- Use a monthly budget ‘“ by setting up a budget you can control your finances. By using a budget you can also determine any expenses that you may not have listed in your expenses. If you were accurate in your expenses and you have an accurate disposable income figure, then you can also do another trick. Take your disposable monthly income and multiply by 12. This will give you your disposable income for the year. If you apply 50% of your disposable income to your debt then divide your disposable yearly income by 2. Then take that number and divide by 365 to get your daily disposable income. This will tell you each day what you can spend on whatever you want. If that amount scares you because you spend more than that each day then you know why you have large credit card debt.
No one wants to reduce what they spend it each day on themselves or their family but you must know that carrying credit card debt is detrimental to the entire family. By reducing your debt you can improve your credit score which could benefit you and your family in the future. Monitoring your credit is critical and should be done at least every six months. That includes your spouse if you are married. By having an accurate credit report and reducing your credit card debt you will see many benefits. Higher credit scores and lower debt will mean better terms on new loans. You can save thousands of dollars by having a good credit score. Start reducing your debt today.