6 Tips to Reduce Your Debt
Start your financial spring cleaning with these debt-busting strategies. By Maggie Sieger
1 Assess your debt.
Zero debt is what you’re aiming for, right? Not
necessarily. There’s good debt, and there’s bad debt.
The good kind is debt that will produce a return
in the future—or, at the very least, it’s deductible.
Credit card debt is always bad debt. Pay it o; first.
2 Set a monthly financial target.
Do the math, and determine how much money you need each month to return to stable
financial ground. Getting there may require cutting expenses or it may require finding
another source of revenue, such as a second job. Don’t damage personal relationships by
counting on family or friends for credit. And don’t dip into retirement savings—or stop
funding your retirement—unless it’s unavoidable. Compounding is your biggest ally.
3 Identify smart savings.
If you do have to make cuts, try to find savings that won’t hurt your household or
your business. For example, it might be OK to go without letterhead for a month
or cancel your cable TV, but don’t fall behind on the o;ce or car lease since late
payments have a way of multiplying the problem. As you learn to live with less,
gradually increase the amount going into savings or toward paying o; debt.
4 Look ahead. Always be aware of new revenue opportunities and expenses that may lie down the road. On the revenue
side, don’t get so wrapped up in the day-to-day work that you forget to prospect for tomorrow’s deals. That includes maintaining net works
and your connections to allied professionals. They can be an invaluable source of trends or links to new clients. On the expense side, keep
an eye on what you may need to replace or renew over the next five years. Will you need a new car three years from now? How much should
you save annually to make sure there’s a substantial down payment or, even better, enough for a cash purchase when the time comes?
5 Prepare for the worst.
Ask yourself: If the next three sales fall through, how will I pay my
mortgage? Putting together a simple “what-if” plan to deal with
worst-case scenarios can be comforting because you know there’s
already a solution in place.
6 Develop a savings habit.
Like any good habit, saving money can be di;cult.
People tend to drift away from things that are hard
or that they don’t like or aren’t good at. But keep
plugging away any way. The literal payo; will be
seeing your debt decrease and your savings increase.
SOURCES: Small Business Administration ( www.sba.gov); Kevin F.
Schulz & Associates, Financial Insight Group, Bellevue, Wash.