4 steps to get out debt

By Sidney Perez.



According to a BusinessWeek report, total household debt -- including car loans, mortgage, and student loans -- topped 100% of disposable annual income two years ago for the first time ever. Contrast that to 20 years ago when the nation's debt stood at just two-thirds of our disposable income.

One of the consequences of this "crazy trend" is the financial crisis we are suffering now. The banks gave loans too easily to people who cannot reimburse them.

So, if you want to get out debt here are some tips to help you.



Firstly,"stop spending more than you have".

Indeed, American people tend to spend a way more than they can afford to. As we talked about it in class, do not pay your vacation on credit. With an APR of 20%, it is not worth going on vacation 2 weeks because you will pay for many years to reimburse it and then you will have to work hard and not really take benefit of this vacation.


Moreover, "Start looking for ways to cut expenses"

Maybe you think you are a busy person and you do not have time to look for good deals. However, in the same way you spend time at work to earn money, you can also use your free time to save ( and then win) a lot of money. Time is money, so, use your time to look for good deals, wait for sales to buy clothes, try to buy online, or plan your vacation one year from now to save money.



Furthermore, "Pay off" your credit cards, other unsecured debts and your cars.

Once again , time is money, so do not wait too much to reimburse your purchases on credit. If you have enough liquidity, pay them immediately and do not wait too much because the interest are going to grow fast.



Finally, "Save for retirement"

Rather than borrowing money you should save it now to be able to consume better tomorrow.

"Save money now, live better tomorrow". If you avoid "wasting" money in paying loan interests, you can save it into a retirement account which will grow very fast thanks to the interests. Don' forget that Future Value = Present value * (1+i)^N. It is an exponential growth for your money, and it is better in this sense ( when you save money) than the other when it is a even more important exponential growth of revenue for your bank ( when you borrow money).


Sources :

1) http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm

2)
http://abclocal.go.com/kgo/story?section=view_from_the_bay/consumer_finance&id=6608370

3)
http://www.census.gov/