Controlling personal debt

Let’s start with the cold hard stats… 7 out of 10 Americans live paycheck to paycheck and are loaded with credit-card debt.

The average American household has at least one credit card has nearly $16,000 in credit-card debt according to CreditCards.com, and the average interest rate runs in the mid- to high teens at any given time. If you can learn how to control your personal debt by making it work for you, you can get on track and accomplish your financial goals.

Here’s a few quick tips to get you started…

Understand that some debt is good.

For example, borrowing for a home or even a college education usually makes good sense. Just make sure you don't borrow more than you can afford to pay back, and shop around for the best rates.

Understand that some debt is bad.

It’s usually not a good idea to use a credit card to pay for things you consume quickly, such as meals and vacations, it doesn’t make sense to finance a hamburger… unless you can pay off your bill in full every month. Using a card for these items is the easiest way to fall into debt. Try putting aside some cash each month for these items so you can pay the bill in full. If there's something you really want, but it's expensive, save for it over a period of weeks or months before charging it so that you can pay the balance when it's due and avoid interest charges.

Get a handle on your spending.

Most people spend thousands of dollars without much thought to what they're buying. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or use it to reduce your debt more quickly.

Pay off your lowest balance cards first.

The key to getting out of debt efficiently is first to pay down the low balance loans or credit cards first. That way you get a small win each time you pay something off and your confidence will grow. Now, whatever the minimum payment was on the last card… add it to the next one and you’ll snowball your way out of debt.

Expect the unexpected.

Always have a cash cushion in case of an emergency.  If you don't have an emergency fund, a broken furnace or damaged car can seriously upset your finances. Start with $1,000 and stick it in an envelope. Then, when you pay off your credit card debt, start saving up to 3-6 months of living expenses. You'll never stress over those small emergencies ever again.

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