Personal Insights

Getting debt under control

Many Americans need debt help. Debt becomes a problem when you have too much of it. Or it keeps you from saving money or purchasing a home.

Everyone wants to have nice things to show for their hard work. But you want to make sure your debt doesn't hinder more than help. And, you must make sure cash is available when you need it.

Understanding debt

Debt can be accrued and paid off in different ways. For example, installment debts, such as auto loans, require equal payments over a period of time. Revolving credit, like credit cards and lines of credit, makes money available up to a pre-determined limit. You use the available credit and replenish it as you make payments.

To get a handle on your debt situation, you should start with a clear picture of where you stand today and where you want to be in the future.

Do you need debt help?

To diagnose your debt situation and assess whether or not you need debt help, ask yourself these questions:

• Do you take out cash advances? Do you run up balances on one card to pay for another? By doing these things, you're perpetuating a cycle of debt. And you're likely paying much more in interest.
• Do you incur additional debt, like lines of credit, to pay your bills? Opening new lines of credit may seem like a good approach to pay off existing debt. But, keep in mind, you're adding new debt to your financial situation. If you are living outside your budget, you risk incurring unnecessary debt and paying higher interest.
• Do you only pay the minimum due on your credit cards each month? If so, you're carrying a debt balance each month and adding more interest. This balance can grow quickly and before you know it, you'll be paying interest on interest! Paying off your credit card balances each and every month is a key component of financial freedom.
• Do you pay your bills late each month? Late or missed payments mean you'll pay more in late fees and interest, plus take a hit on your credit.
• Are any of your credit cards maxed out? If you've reached your limit, think carefully before applying for more credit. Instead, work at reducing your balance. The closer your credit cards are to their spending limits, the more likely your credit score will be negatively impacted.

The answers to these questions will provide valuable insight into your debt situation. If you've answered yes to even one of these questions, you should focus on solutions that help you reduce debt. Although you may have to make sacrifices, you can become debt-free with thorough planning and discipline.

Debt help through consolidating

You've evaluated your situation and realized you have multiple forms of debt, including credit cards, loans and other bills. A reasonable debt solution may include consolidating your debt into one loan. With debt consolidation, you transfer all your debts into one loan with one monthly payment and one interest rate.

You can get debt help and consolidate your debt in a several ways, including these popular options:

• Securing a low-interest credit card. You can transfer balances from high-interest credit cards to a new low-interest card. This approach works well if you don't use your other cards.
• Taking out a home equity loan or line of credit. You can leverage the equity you've built in your home by borrowing against it. Typically at lower rates, a home equity loan or line of credit lets you pay down credit cards and other debt. Keep in mind these loans are secured by your home. You must make timely payments to avoid foreclosure risk.
• Using a debt consolidation loan. These low-interest personal loans can be used to pay off your debt. Online debt consolidation calculators can help you find the best solution for your particular situation.

It's important that you're committed to reducing your debt before using debt consolidation options. You don't want to find your balances creeping up again after you pay them off. If they do, you'll have to start paying them off all over again, plus make payments on your new consolidation loan.

In addition to online debt help tools, you can consult with credit-counseling agencies to find the right solution for you. Make sure you use qualified and reputable sources to help with your debt consolidation efforts. A good financial planner or trustworthy institution can help steer you in the right direction to meaningful debt reduction.