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Achieving Financial Security by Conquering Personal Debt

Overloading on debt is expensive. In addition, credit can be an important lifeline in the event of a crisis, and if you have used all your credit, you have removed a valuable cushion of security.

Debt is a major hindrance to achieving financial security for many Americans. Here are some tips on how to conquer debt.

Reduce Use of Credit Cards

Nearly three quarters of the people who use credit cards leave unpaid balances from month to month. Compounding monthly the unpaid balance on a credit card means you’re effectively paying an even higher interest rate than that stated.

If you need a credit card for convenience, pay it off each month. If you can’t control your charging, cut up your cards.

Debt experts find that people who pay cash instead of charging not only eliminate expensive interest charges, but also typically spend 25% to 30% less in the first place. The only tough part about spending cash is that it is more difficult to track when drawing up a spending diary.

Reduce Current Debt

If you currently are heavily burdened with debt, there are several steps to consider. First, of course, is to start paying off your debt, and two approaches are possible: You can pay off the highest-interest debt first, which would save you the most money; or you could pay off the lowest balance first.

You may want to consider consolidating your loans. Home equity loans, whose interest rates can be reasonable and whose interest payments are usually tax-deductible, are a popular avenue. But you may be putting your home at risk to pay off, say, a car loan, when in fact it might be better to sell the car and buy a cheaper one. Remember, too, to be cost-effective the interest rate on the consolidation loan needs to be less than the interest rate you were paying before on the multiple loans, or the payoff time needs to be stretched out to lower monthly payments. Also, if you consolidate your loans, but then spend the savings, you’re not coming out ahead.

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