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Say Goodbye to Debt

Get a handle on your debt. Financial experts generally recommend that you keep your consumer loan payments, such as auto loans and credit cards, below 10% to 15% of your monthly net income. Add in your mortgage payments, property taxes, homeowners insurance premiums and any mortgage insurance (PMI) payments, and your debt generally shouldn't exceed 36% of your monthly gross income.

Pay off your highest-rate debts first. Use a Debt Reduction Calculator to figure out which debt to pay off first and how much to pay monthly towards all your loans. Set a fixed amount to pay toward your highest-rate debt, and don't decrease it as your balance dwindles. Once you've paid off your highest-rate debt, shift that fixed monthly payment to your next highest debt. With these steady payments, you'll pay down your debt more quickly and save a bundle in interest.

Consider paying off a high-interest rate loan in one shot. If you've built up some relatively high-interest rate debt, like a credit card balance of several thousand dollars, think of ways to pay it off all at once. For example, sell some unneeded belongings of have a garage sale, and use the proceeds to pay off your debt. Or consider dipping into any savings you have, since the interest you're paying on your credit card is costing you a lot more than you're earning on you savings account. Either way, commit to not rerunning up your debt, and concentrate on building, or rebuilding, your savings account as soon as possible.

Consider consolidating your loans. If you have high-interest debt, such as large outstanding balances on several credit cards, look into combining them into one lower-rate credit card or loan.

If your're a homeowner, another option is to consolidate your debt into a home equity loan. Since the interest on the first $100,000 borrowed is generally tax deductible, this is an attractive option. However, be aware this type of loan uses your home as collateral; if you default on your loan, your home is on the line. So if you go this route, get serious about repaying the loan as soon as possible, and commit to not running up additional debt.

When to seek advice. If you're feeling stretched, living from paycheck to paycheck, or you just can't seem to save a dime, consider getting some professional advice on setting up a budget. If you have a specific goal in mind, such as buying a home, financing your child's education or saving for retirement, a financial planner can help you work out a strategy to meet your goal. If you're having trouble keeping up with your monthly bills and are way behind in paying old ones, it's definitely time to seek help from an organization such as www.myvesta.org Consumer Credit Counseling Service.

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