In the United States, household debt is a fact of life. Ubiquitous credit card offerings and ease of use have made running up that debt deceptively convenient. If your nonmortgage debt exceeds 20% of your take-home pay, or if your monthly mortgage/rent payments exceed 30% of your monthly take-home pay, you may be overextended.
The first step in eliminating debt is to establish a budget that allows you to trim expenses. Track your expenses, then analyze them to determine where you can cut back. The goal is to reduce current spending so that you wont need to add to your debt and to free up as much cash as possible to cut down existing debt.
To reduce debt, begin by paying down your highest-rate credit cards and consider consolidating high-rate debt to lower-rate debt. Also take advantage of card promotions with low introductory rates and pay off your balance aggressively during the introductory period. You can also contact your current credit card companies to inquire about consolidation. Consider using loans and credit cards for things that have long-term usefulness or that will appreciate in value, not short-term needs like vacations or meals out. If you can pay off your balance each month, however, using your credit card for everyday purchases can be convenient. By analyzing your spending, controlling expenses, and establishing a plan, you can reduce your debt, leaving you with more money to save today and a better outlook for your financial future.