Managing Debts

A year after the fall of Lehman Brother, followed by major bail out of some largest financial institutions in America, the economic crisis is yet to subside. Corporate that have prolonged high debt borrowing has been hit the hardest as banks aren't willing to lend anymore instead, pump up debt collection, which contribute to the fall of some other small-to-big business players because not able to pay back debt.

Debt is a powerful tool; it is a leverage that helps you to effort a big ticket item with relatively small up-front capital, like a big house, car, vacation home, etc. However debt is also a double-edge sword, sword you hold with one sharp edge pointing at yourself. During this trying time, debt or high commitment isn't something you want to be around, especially when your income is diminishing or lost totally. Even normally you consider your house is an asset, it can turn around and stab you in your heart in this difficult time. When you lose your job or your income decreased, you lost the capacity to pay back house mortgage, the mortgage naturally become the biggest burden to your wallet and saving. Needless to say your fancy car and other feel good items in your house have suddenly become visible liabilities that are too heavy to bear.

By this time if you still have something left, and you're not bankrupted yet, probably it's time to think. Large Corporation will downsize to reduce expenses which require a lot of scrutinizes as not to affect the company's reputation and performance. As an individual, it is much easier to step up to reduce expenses and actively managing debts.

Consolidate debt: A lot of people mistake debt consolidation with debt reduction. Debt consolidation is merely combining many of your debts into manageable chunks so it becomes easier for you to oversee and manage; your debt amount is still same. Having debt consolidated, one still have to consistently commit certain amount of money in order to reduce it and subsequently pay it off. However there is a risk associated with consolidating credit card debt into mortgage, student debt solutions. People tend to start using their credit card when there is limit! Forget about the once-in-a-life-time deal, and forget about saving sales. Don’t be fooled by cash for clunker program, JC Penny's or Macy's big sales. One can only truly saving money when he/she is not spending at all.

Liquidify your liabilities: Although it feels convenience and good to have more than 1 car, but it also adds to your expenses and monthly commitment. If you are still standing but having difficulties in juggling between your monthly commitments and real household spending, you might need to do something now. Start selling off your extras, such as your vacation car, or high consumption SUV. Keep your daily car which is fuel-efficient. It doesn't hurt to car pool. You just need to wake up earlier in the morning. Instead of consolidating the credit card debt, why not get rid of it totally? If your 50-inches plasma TV is still on a loan in your credit card, why not return it (if still within return period) or sell it off. You don't need a 50-inches TV to impress your friend if you are secretly broke. There are a lot of places you could advertise it for sales free, like

Reduce Subscription: Large corporation makes money through subscription by locking customer for years. Things like cable TV, phones bill, broadband subscription, club/gym memberships, etc. These things, even small amount, can become significant if added up. Start to source for a cheaper quality alternative, a cheap alternative doesn't always mean without quality. The industry is very competitive, there is always some one efficient enough in managing cost by reducing expenses thus still giving good quality services in lower price. You just need to keep looking and do a bit of due diligent. Get rid of the club membership if you don't go for even once in a month.

Mindless Spending: Going shopping during saving sales is not smart if you don't need anything. Buying things in bulk in low price is not smart if you can't finish using them before it goes bad. There is no such thing as once-in-a-life-time deal. Think - if it is profitable, why not they do it again? They will do it again because they are sure there are always "smart" people who are willing to spend for the once-in-a-life-time deal. Always think before you spend because the best way to save is not buying discounted items that you don't need but it is not buying at all that saves.

In the end, all these recommendations can only be viable if when one has the discipline to execute the action and maintain it. Once you start doing it, do it consistently and keep it as your habit. Teach your children the importance of saving money as they play a major role in your financial well-being and their own future.

Lastly, there is no uncontrollable debt, but there is only indiscipline to make an effort.

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2 Responses to this post

  1. Anonymous on October 2, 2009 at 5:52 AM

    I used ”Credit Solution” to settle my debt and avoid bankruptcy. They managed to reduce my debt up to 58% and improve my credit score. It's legitimate . I came across this company on NBC News Special Edition. Check it out here:

  2. Ace Cash Express - Payday Loans on January 13, 2010 at 1:45 PM

    You might want to consider debt consolidation. Debt consolidation enables you to pay off your entire debt with lower interest rates. On the other hand, there's debt negotiation. Debt negotiation lowers your debt level with impacts on your taxes and credit report. Debt consolidation has the least affect on your credit score and helps you get better credit terms in the future.