I’ve seen the damage and fear that debt can cause. Whether you have credit card debt, or student loan debt, or want to buy a home or a car that you will finance, you’re dealing with debt. Debt is the major stress point in every household that I’ve worked with. It weighs down your spirits, keeps your mind occupied with fear, and makes you feel bound.
Here are 3 crucial steps to conquer your debt and address the financial fears in your life.
1. Identify your existing debt.
Make a list of all your existing debts, from student loans to the $8,000 your grandmother loaned you when you didn’t have the full down payment for your new home. For every debt you identify, you must do everything to pay at least the minimum due on each one. When you’re on track with that, your next job is to pay more than the minimum on the debt that has the highest interest rate. Once that debt is paid off, focus on speeding up repayment on the next debt with the highest interest charge.
2. Find opportunities to trim expenses, freeing up more money to pay off debt.
Create a detailed report of where you are currently spending money. You can use my Expense Tracker tool to input your expenses and it will create a detailed report for you. Once you’ve identified all your expenses, examine where your money’s going. You’ll start to see opportunities for nips, tucks and maybe some very big cuts. When I walk through this exercise with people it is amazing how we can often find $250 to $500 or more a month in spending cuts. That’s a lot of money to put toward repaying debts.
3. Borrow the least amount, for the least amount of time.
You need to be super-sharp about how much money you borrow. When a mortgage lender tells you what you are eligible to borrow, it’s irrelevant. That lender knows absolutely nothing about whether you have adequate emergency savings, or if you are on track with your retirement savings. When it comes to buying a home, smart borrowing starts with carefully setting a budget for a home that meets your needs and is within your means. And if you plan to finance a car, please steer clear of loans that last longer than 3 years. Remember, cars are depreciating assets. There is no way you will ever trade or sell a car for more than you paid for it. With that in mind, your goal should be to borrow the least amount, for the least amount of time.
When you are wracked with financial fears like your fear of debt, you can’t possibly be all that you are meant to be. Are you worried you’re not on track with your retirement savings? Do you have anxiety that comes with big-ticket purchases such as buying a home, a car, or a college education? Do you lack an emergency fund to get through a hard time?
Suze Orman: To really save money, do this…