You Are Not Alone

You are not the only person in the country who needs to be a client of debt management reduction services.  The Federal Reserve Board estimates that 40% of all Americans are in debt.  There are those who question these figures, thinking that the number is, in fact, a lot higher.  It is because of the stigma of having to owe money that people would lie on surveys or questionnaires about their true financial situation.

You also aren’t alone in having to manage your monstrous monetary mess.  That is why you have to be a client of debt management reduction services.  You will not be alone in the office waiting room, waiting to see your counselor.  It will probably be packed to the rafters with other people seeking to be clients of debt management reduction services.  Many of these services are low cost to no cost.

You Are Not Morally Deficient

In our society, we tend to think that justice is fair and shows it by giving more money to good people and less money to bad.  Think some very rich and very misbehaving celebrities like Donald Trump and Michael Jackson.  Although they alone know their moral behavior, sometimes it sure doesn’t seem fair that they are rich and you are looking to be a client of debt management reduction services.

This is not how the world works.  Money is a force like fire – it goes to those who know how to use fire and those who don’t.  Money does not make any moral judgments on the people it goes to.  You can probably think of very good very poor people in your life, such as Mahatmas Gandhi and Mother Teresa.  They didn’t need money … which was fortunate in their cases because they didn’t have any money.

Instead of blaming yourself for being “stupid” for getting into debt, congratulate yourself that you are taking action against debt by becoming a client of debt management reduction services.  And good luck to you.

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The obvious one, of course, is to simply pay down your debts. That can be difficult, and for some it may seem hopeless. But there is one method that has been employed by many with great success: the snowball method (so named by Dave Ramsey).

The technique is, in essence, very simple. Order your debts from lowest to highest. Pay the minimum required on all monthly debts, then allocate any remaining funds you can to paying off the smallest debt. Thus, the smallest debt will get paid off first. This frees up yet more money to apply to the next-smallest (now the smallest) debt. Repeat until you have reached the level you want.

This method has several advantages. You see regular, visible progress in reducing your debts and in a relatively short period of time you could well be down to a livable level. As you roll-off those debts, you have more free income which can be split between payments on the debt next in line and the enjoyment of some rewards.

Psychologically, this helps keep the debtor motivated to continue the program. Seeing real progress helps one stick with it during a financially challenging period.

But, for all its virtues, the method does have one real drawback. It actually requires more time (and money) overall to pay off all your debts that way. The reasons have to do with how interest compounds.

If you pay off a $1,000 debt, a $2,000 debt and a $10,000 debt they may all have the same rate of interest. But paying off the lowest amount first actually costs you more in total interest paid. Since any outstanding amount is charged at the same rate of interest, the higher amount will incur the largest charge. As a result, over time, you will pay more in total interest charges.

Reversing the order, paying the highest amount first, actually saves you money in the long run. As you pay down the highest debt first, you are reducing the amount of interest dollars paid over time.

The difficulty is that the latter method, though more cost effective in the long run, is harder for most people to stick to. It takes a lot of discipline to live with that debt burden as you slowly reduce the $10,000 debt.

At most interest rates, the lower debts will actually get paid off first. But in the meantime you are making high monthly payments. That takes a lot of willpower every month.

That willpower is the one thing that a lot of people too deep in debt find hardest to generate. It’s the factor, often, that led to excessive debt in the first place.

For such people, using the snowball method may well be an advantage, despite the larger total amount paid out over the life off all the debts combined.

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If you’ve managed to maintain a fairly clean credit record with no or very few late or missed payments, the chances are high that you’ll qualify for a low APR balance transfer credit card.  These credit cards have become among the most popular cards offered and offer a variety of balance transfer offers.  In order to find the best credit card offers, you’ll need to shop around to find and compare credit card offers which are the best for your needs.

An increasing number of consumers are beginning to understand just how much their credit score affects their ability to borrow money.  With this realization many people are looking to repair their credit score.  It can be an ominous task to attempt to remove errors from your credit record and by only paying the minimum payment on your credit card the odds that you’ll pay off high balances in your lifetime are pretty slim. 

Many families have fallen into the trap of making minimum payments because these payments are affordable and allow the consumer to spend more than he or she should.  They may find themselves making large purchases and justifying it because it will only cost a few dollars a month.  What most people don’t realize is that a mere $1,000 purchase, paid off in minimum payments, can turn into a commitment of over twenty years and the consumer accumulates thousands more dollars in interest.  This puts consumers in a revolving cycle of debt that they may never get out of. 

You can begin to protect yourself and your assets in many ways.  By paying as much as you can on your charge cards every month, or by paying the entire balance, you’ll be able to avoid high interest charges.  The FDIC and other bank regulators have taken steps to ensure that minimum card payments are reasonable and give the card holder a certain amount of flexibility in paying them off.  As credit card interest rates are often quite high, consumers need to take charge of their situation and pay as much of the card balance as they can afford.  The amount you pay toward your credit card bill each month will have greater long-term consequences for your finances than how much money you save or invest each month.  If at all possible, pay as much above the minimum payment as possible.  By adding an additional $50 a month on top of the minimum payment you’ll be able to reduce your total interest costs immensely.

If all you’re able to afford is the minimum payment each month, it’s extremely important to pay that amount and to pay it in a timely manner.  Many consumers are not aware that if they pay less than the minimum the bank may still assess a late fee ranging in price from $35 and up and could report the account to the credit bureaus as delinquent.  This type of negative information in your credit file could result in the issuer of the card increasing the interest rate or canceling the card.  If you’re planning on carrying a balance on your card each month, be sure to look for a card that has a low interest rate and a grace period.  The grace period is the number of days before the card company starts to charge interest on your new purchases.  The grace periods may vary from company to company.  With most cards, if your bill is not paid in full you may be charged interest immediately on new purchases.  Most cards have no grace period, which means you’ll always pay interest on new purchases from the day you make the purchase. 

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