It's a lot easier to stay out of debt in the first place than it is to dig yourself out of a mess you're already in. To avoid debt in the first place, make a budget and stick to it. Budgeting is a bit like dieting, and if you don't allow for an occasional treat you're more likely to feel deprived and fall off the wagon in frustration.
Remember to include a reasonable line item for discretionary spending, like clothing and entertainment. When your budget is thorough and realistic, a little discipline should allow you to stick to it. If you blow it one month, cut back the next.
Establish an Emergency Fund
Some people go into debt because they buy a bunch of junk they can't afford. Unfortunately, others go into debt when they lose a job or encounter unexpected expenses. To make sure you don't get stuck going into debt when something bad happens, you need to build up an emergency fund.
Aim for a total of six months' worth of living expenses. You might need to cut back on discretionary spending until the fund is firmly in place. The money needs to be liquid and easily accessible.
Mortgage Debt
Few people can make the dream of owning your own home come true without borrowing money. So long as you get a mortgage whose monthly payments you can afford, mortgage debt is not really a bad thing. The government even lets you to tax deduct your home mortgage interest.
Credit Cards
Credit cards are actually a valuable financial tool if you pay them off in full each month. If you have credit card debt try to consolidate it all to a card with a the lowest fees and interest rates. Try to free up one card that has no balance and that you are able to pay off monthly.
Helping Yourself or Getting Help
If you're already in debt, try to work out a payment plan with your creditors. They don't want to foreclose on your home or repossess your car and might be willing to workout a loan modification, interest rate deduction or a debt repayment plan. If your solo efforts don't resolve matters, look for a debt counselor.
There are nonprofits counselors out there, and you can check their reliability with theNational Foundation for Credit Counseling or Better Business Bureau. A counselor can help you put together a plan and decide which debt to tackle first, and in some cases will negotiate with creditors on your behalf.
The Last Resort
Filing for bankruptcy should be your last resort. Bankruptcy information stays on your credit report for a decade, making it tough to buy a home or car, to rent an apartment, or even to get life insurance or a job.
At the same time, personal bankruptcy could give you a fresh start. It grants you a court order that says you don't have to repay some debts, and you will receive credit counseling. You need to speak with a specialist to make sure you understand your options and all the consequences.
Annabella Gualdoni - Annabella Gualdoni is a lawyer by education but works an educator and real estate professional. She has bought, sold, and renovated ...
