With the economy facing a down turn, Many Americans are taking a hard look at their finances and finding that they are in a much worse position than they might have originally wanted to admit. They have all sorts of credit card debt, cars that they owe more on than what the car is actually worth and home mortgages which are very disproportionate to their incomes. Many are now following financial advice offered by more conservative financial authors such as Dave Ramsey and Daniel Lapin which suggest that we should have a buffer of 3 to 6 months of expenses in savings and that we should become debt free as fast and as soon as possible.

Of course we can only use a dollar bill to do one thing at a time, and we are forced to prioritize. Do we start throwing as much money at our consumer debt as quick as possible in hopes of getting debt relief solutions, or do we start saving and build a up a buffer to prevent us from getting into any further debt. Many have said that to get out of a hole, the first thing one needs to do to get out of a hole is quit digging down. Certainly one will never get out of debt by taking out new debt while paying off old debt, so first we must accept that we won’t take out any new debt for any reason.

If we make a commitment to not take out any new debt, we’re going to need some money in savings to take care of emergency situations, such as car break downs and trips to the hospital, but we’re not going to want to save up tens of thousands of dollars earning 3% interest while we’re paying 20%+ in interest on credit card debt.

Radio host and financial author Dave Ramsey suggests that we save $1000 and then start paying off our consumer debt. This is a good number because it gives us some cushion and allows us to pay cash for many of the smaller things that would traditionally cause us to take out new debt. After that $1000 is saved we can start paying on our highest-interest or smallest-balance debt. Either way is fine, as long as you pay off your debt with focused intensity and treat it like the cancer that it really is. Of all of the debt relief options on the market, paying them off as fast and quickly as possible is the single most effective way in reducing credit card debt.

This entry was posted on Tuesday, April 7th, 2009 at 5:00 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.