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Reduce Debt
Financial planners are famous for making “Pay yourself first” the first rule of personal financial planning. Although planners and credit counselors say a lot of things about a lot of subjects after that, a good argument can be made that the second rule of personal financial planning is “Reduce debt.”
There is no question that reducing debt is one of the first few things a credit counselor, a financial planner or the real estate agent fighting to qualify you for a home loan will tell you to do. It is such a truism of personal finance that it will be stated about a dozen different ways so you’ll get the point – get out of debt, reduce debt, pay off your debt, cut up your credit cards, etc.
Before, during and after
The principle is so important that you should remember it regardless of your credit score or any other objective or subjective rating. That is to say, you are well advised to reduce debt regardless of how much you have, how soon it’s due, how much income you expect or what investments you own.
Before you Res taking on debt, you should calculate how much more quickly you can discharge it than the prospective lender is giving you. This is a great way to raise your credit score, too. Early debt repayment is an unqualified good thing as it affects your credit score. If you can reduce debt down to just your mortgage, and keep that current, you will be in almost as good a position as you would be with no mortgage at all.
After you’ve gotten yourself into too much debt, up to an amount that triggers loan denials and such, then it’s not just a good idea to reduce debt, it’s a necessity. As opposed to payment histories that by their very nature take time to develop into positive reports, paying down debt is swiftly reflected in your credit report, and even raises your credit score faster than timely payments. Month-to-month credit report updates can clearly show debt reduction and improve your standing and scores.
How it’s done
Whether you want to develop a pattern to use over a long period of time, or just want to reduce debt as much as possible over a few months, you need to free up income or other assets to apply to your loans. Increasing income or reducing expenses are the two most common ways to find money in your budget for debt reduction.
Economizing on expenditures might mean learning how to shop differently, driving less and walking more, eating out less often or putting off that vacation for a year or so. Make sure that you take a complete look at your entire financial life so that you know what you are dealing with. Do not try to reduce debt, institute any new budgetary procedures, or cut off the cable TV or phones unless you have taken everything into consideration – and talked to everyone in the family, too.
It’s a family thing
If you have a family, recognize that the home budget is everyone’s home budget even if you are the one making all the money. Your spouse and children, if you have them, make plenty of non-financial contributions to the household that have tremendous value. Be careful to include your family in any decisions to reduce debt, as they are affected, too.
When everyone is on the same page, with the same goal, you will find it easier to implement and maintain a new financial plan. You will find that you can both reduce debt and increase your credit standing with planning and discipline.
Topics: Credit Repair |
