|
Reducing Debt: The Healthy Way
01 05 06  22  28
-------- Loosing Debt is Like Loosing Wheight
 (Free Money Finance is Hosting this weeks Carnival of Debt Reduction. On it you will find a posting from Mighty Bargain Hunter that complements this one. I am republishing an old article that is still relevant.)
Sooner or later almost all of us end up with more debt that we feel
comfortable with. Sooner or later we also gain weight by having a life
style that is less than perfect. I have a philosophy in life: Loosing
Debt is Like Loosing Weight. Let me explain why in the following
paragraphs.
- You must first recognize your current level: It is
the same as stepping on the scale: find out how much you owe to
every creditor. Find out what are the minimum payments, interest
rates and specific terms of the debt. Categorize the debt in
good, bad, and ugly. (Debt that is helping you grow, debt that
should be reduced, and debt that should be eliminated or modified
immediately).
- You must find out what is a healthy level: Although
0% of fat and 0% of debt may sound ideal at first, it isn't necessarily
the best option. You do not want to spend your child's college
savings to pay off the mortgage (or you may end up with a dropout
kid). However, you certainly know that if Guido (a debt
collector) is knocking at your door on a weekly basis, then that is the
kind of debt you do not want to have.
- It requires behavioral changes: Fasting will get rid of
weight fast, but as soon as you finish the diet you go on a binge and
eat all you didn't ate during your fasting. You may end up with
more weight. Same thing happens to people who set a very tight
budget as a temporary measure, or who spend savings paying debt:
they haven't really changed spending habits. Those unchanged
habits will get them back into debt in no time. Changing bad
habits takes time and it is a painful process. You must go
through the process.
The main reason the Atkins and the South Beach diets are successful is
because although they impose a strict regime in the beginning of the
diet, they do not starve you, and they do teach you a new eating style
(change your behavior).
- You must not harm yourself in the process: Sure, a
liposuction may get rid of all of the fat, but it may kill you in the
process. Retirement money can get rid of debt today, but it may
leave you begging for food on the streets in the future. In
general terms, avoid drastic debt and weight reducing measures.
Savings, home equity, big monetary gifts, and tax refunds are
sacred. Keep them for growth, don't waste them on one time debt
payments (more on this later).
- You must set out a plan and carry it out: There is no easy
way out of either issue. You have to sit down, recognize your
problem, set some goals, detail a procedure to achieve them, and go for
it. The process will probably take a long time, and you will have
to spend time adjusting and improving on it. Don't expect to get
to your ideal weight overnight, and neither expects to be debt-free
overnight. You may have to give yourself one or more years to get
to your desired goal. Be patient, but be constant. Work
hard towards your goal.
- You must exercise regularly: Sure, by just limiting
consumption (of food and money) you can reduce your problem. But
if you really want to do better in life you need to put some activity
into it. In the case of your finances it means actively watching
your spending and debt reduction, continuously learning on financial
matters, and actively searching for creative ways to reduce debt and
increase net worth. Most importantly, you must make regular
payments to your debt if you want to get out of it.
|
