Of all the personal finance issues, controlling debt is probably one of the most important. Although it’s not impossible to live life debt-free, it is difficult due to the fact that we live in a consumer-driven economy where people do not practice self-control. However, it doesn’t have to be like that. People can control debt. Here’s how:
1. Develop and stick to a budget. The only way to control debt is to control your spending. The only way to control spending is to have a budget. See how it all works together?
2. Make a vow NEVER to charge anything. Sure, we are all tempted to buy stuff when we see the famous “No Payments, No Interest for One Year!” advertisement. I have even done it myself in the past. The problem with these offers is that a lot of people buy something that they really can’t afford and then don’t make an effort to pay for it during the “free” period. Then, one year later, they still have the debt and now interest is being charged (be aware that some companies charge interest during the interest-free period but attach it after the free period is over).
3. Don’t Buy More House Than You Can Afford. I touched on this yesterday in the post about Buying a Home. Mortgage lenders are notorious for authorizing bigger loans than their clients can actually afford. I remember when my wife and I went to talk to a mortgage person when we bought our house in 1999. She asked us what price range we were looking at and we said $100,000 or so. She did some quick calculations and said, “well you guys qualify for MUCH more than that. Don’t sell yourselves short.” I was like, “hey lady, are you going to pay the note for us?” So although the Federal Housing Authority says that most people can afford to spend 29% – 41% of their gross income on housing (mortgage, taxes, and other costs), that may not be the case for you. I wouldn’t be comfortable spending that much money on a house.
4. Stay away from payday loan companies. This should be a no-brainer. If you want to go broke, get a loan from a payday company. Plain and simple.
Now, here are some articles from other bloggers on the topic of Controlling Debt:
It’s Your Money:
Money and Investing:
Candadian Financial Stuff: