According to the Federal Reserve, the total U.S. consumer debt (excluding mortgages) was $2.46 trillion in June of 2007, up by over a billion from the previous year. Per household, the median income is $43,200, and the average credit card balance is almost 5% of that annual income. The numbers are mind-boggling. For more numerical information, the Federal Reserve, MSN Money, and the Center for Media Research offer interesting reading.
This said, debt reduction is obviously on the minds of many Americans. And with so many commercials enticing us to use debt settlement services or to declare bankruptcy, we need to resist and research the best debt reduction plans. Personal control and minimizing adverse effects are perennial encouragements.
For most, a good place to begin debt reduction is by keeping a spending log and by using a debt reduction planning calculator. An example of the former can be found on Debt Counseling Corp.’s website, and CNNMoney.com offers an example of the latter. This assessment of your debt problem allows you to progress to the second step of Jean Chatzky’s (Money Magazine) nine step debt reduction program, which is setting achievable goals. Chatzky’s third step for debt reduction is to manage your credit score. Until you know what your score is, you cannot take steps to improve it, and improvement will in turn generally help lower your interest rates. Fair Isaac Corp.’s website is the place to find your credit score. Remember that paying on time, using less of your available credit, and not applying for more credit are ways to improve your credit score and ultimately to achieve debt reduction. Continuing on the path of debt reduction, you need to reduce your interest rates. Simply call your credit card company, tell them that you cannot afford their rates, and ask for a lower one. If they fear your business will go elsewhere, they should cooperate.
Most of debt reduction is common sense, yet difficult to abide by. Bring in more than you put out. If this means getting a second job for a season, then do it. And, don’t be afraid to get help. Although there are many scam artists that advertise debt reduction help, yet offer none, there are many reputable credit counselors. Chatzky cites that according to a vice president at Money Management International, “a third of potential clients can manage on their own…, and another third are in such dire straits that bankruptcy is the only answer.” This means that a third can be counseled through debt reduction.