As they stare down at a teetering pile of bills, so many
consumers wonder how they racked up such a large debt. The
answer boils down to simple mathematics.
“On a basic, fundamental level, the problem is created by
spending more than you make,” says Brad Stroh, co-CEO of the San
Mateo, California-based Freedom Financial Network, LLC, a company
that specializes in debt resolution services.
The reasons for doing so, he notes, are varied:
• Spending addictions
• Lack of budgeting (mistaking the amount of money coming in
and going out)
• Loss of income (reduced hours, layoffs, forced to leave the
workforce)
• Increased costs (health-related expenses, fuel and other basic
living expenses)
• A personal hardship (divorce, medical illness, loss of a loved
one or other major changes in a person’s life)
You can, however, get out of debt—but it takes commitment. Here
are 5 steps to accomplishing your goal.
1. Start Planning—and Saving
“The only way to guarantee solid financial footing is through
proper planning—and that’s where most consumers go wrong,” Stroh
says. “Proper planning means monthly budgeting of cash flow,
combined with saving for long-term security.”
Stroh recommends saving at least 5% of your income to ensure
long-term financial security.
“Of course, this percent will vary by age group and the
individual’s financial goals and objectives,” he says. “Younger
people can expect to spend their early years saving less of their
income, paying off student loans and debts incurred during
periods of lower income. Older individuals should be planning
for retirement and saving a larger share of income.”
2. Seek Professional Help
If you are facing financial hardship, do not procrastinate when
it comes to seeking professional advice.
“People often wait too long,” Stroh says. “If someone is living
paycheck to paycheck, is behind on any revolving financial
obligations (including credit cards), is using credit cards to
pay for necessities, or is facing collection, he should consider
getting immediate advice from a professional debt management firm
or financial advisor.”
3. Stop Spending
If you continue to spend money, despite your ever-growing debt,
you likely have a bona fide addiction that requires psychological
intervention.
“Debt problems are frequently symptomatic of more fundamental
personal issues, such as reticence to address difficult financial
problems,” Stroh says. “Spending addictions can have many causes,
including lack of personal confidence and fulfillment. Similar to
many other addictions, a spending addiction can fill a void in an
individual’s life—albeit with a fleeting source of satisfaction.
People with spending addictions constantly strive for the ‘high’
that they receive from buying clothes, cars and other goods. This
leads to a long-term problem when they cannot meet the consequent
financial turmoil that comes when the bills arrive. For anyone
who may think he has a serious spending addiction, we advise
seeking professional counseling or therapy to resolve the
fundamental sources of this addiction.”
4. Start Communicating
If you’re like many consumers with outstanding debts, the last
person you think about speaking with is the creditor—the company
you’ve been avoiding at all costs.
“Not contacting your debt creditors to discuss and develop a plan
for paying, settling or reducing the principal amount and/or
interest on the debt” is one of the worst mistakes you can make,
says financial expert Ivan Gelfand, president and CEO of Pepper
Pike, Ohio-based Ivan Gelfand, Inc., and author of “Your Money,
Your Future” (to be published in April).
He also recommends contacting relatives or friends for temporary
assistance in reducing debt and making payments, which will lower
your outstanding debts’ interest rate.
5. Conquer Denial—Today!
Many consumers who recognize—and even accept the fact—that they
have a spending addiction refuse to address their problems,
according to Stroh.
“Budgeting is not fun,” he says, “but dealing with creditors is
even less fun. Many people will therefore bury their heads in the
sand, hoping their problems will go away. Unfortunately, outside
of winning the lottery or getting a windfall inheritance from a
long-lost uncle, budgeting and consulting with a professional
counselor are the only ways to successfully resolve financial
problems.”
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