While everybody would like to be debt-free, for most people it’s a matter of managing debt better since you are likely to have some type of debt most of your life—particularly if you own a home. Yet most people don’t know how to manage debt so they can actually reduce their debt to eventually be close to debt-free.
“You don't need to shell out your hard-earned money because of exorbitant interest rates or always feel like you're on the verge of bankruptcy,”
Dion recommends first assessing the depth of your debt. Write it down using pencil and paper or use a spreadsheet like Microsoft Excel. You can also use a bookkeeping program such as Quicken. Include every instance you can think of where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.
Record the day the debt began and when it will end (if possible), the interest rate you're paying, and what your payments typically are. Next, add it all up--as painful as that might be. Try not to be discouraged!
“It’s really a matter of identifying and addressing the high-cost debts first. That usually means credit cards. You don’t need to cut those up, just don’t use them,” said Dion. “Then you want identify the card with the highest interest and pay off as much as you can every month. Pay minimums on the others. When that one's paid off, work on the card with the next highest rate.”
Dion recommends doing whatever you can to retire debt. That includes taking on a second job and using that income only for higher payments on your financial obligations. Or substituting free family activities for high-cost ones and selling high-value items that you can live without (e.g. Do you really need the 800-channel cable option or that satellite dish on your roof? You'll be surprised at what you don't miss.
“As you save and make payments you are not only retiring your debt, but building a stellar credit rating. If you ever move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that,” said Dion. “One thing you never want to do is miss a payment, especially when you are paying off credit cards. Credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.”
For more information and guidance on retiring debt, you can call Dion for a complimentary initial consultation at 508-853-3292.
ABOUT PAUL DION, CPA
Beyond simple “bean counting”, Paul Dion, CPA and associates work side by side and speak in common English to help clients fully understand their tax situation and take proactive steps to pay the least amount of tax legally allowed while minimizing the risk of an audit. Clients save money and sleep well as night.
Business services include small business accounting, payroll, cash flow management, strategic business planning, new business formation, internet controls, QuickBooks, part-time CFO, bank financing, succession planning and non-profit organization direction.
Paul Dion CPA
Paul Dion CPA