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Tuesday, April 7, 2009

Painless Way to Clear Your Debts

Just a few days back a friend of mine was complaining that his economic situation was bad and that he was under huge amounts of debt. He had his credit card debt and his car loan that he has not paid for a few months now, not forgetting his wife's car that has expired road tax and insurance.

While we were chatting on further, he revealed to me that just last month, both, he and his wife got a pay rise. Well, it is a very good thing to happen, since most other people are either retrenched or afraid of that happening to them soon with the economy showing no sign of major improvement. And yet they still find that they are almost penniless by the end of the month.

How can this happen, I wonder. You are used to live by almost 20% lesser income. Now that you have more, definitely you should be able to save more or pay off your debts.The answer lies in our own attitude. How much self control do we have? Are we disciplined enough to control our finances? Do we make a budget every month? Purchasing expensive items and gifts just to impress others or to show-off shouldn't be in our priority list at all.

If you are serious in clearing off your debts, I would suggest that you continue to live with the salary amount that you have been getting before this. The increment amount that you have now (the balance) should be used to pay your debts. You would not feel the pinch much when you apply this technique because you are not used (yet) to live with more money. So the additional money is channelled straight to whatever financial purpose you may have - clear debts, make investments, have savings, etc.

I am practising this method, and I can say that its really worth it!


lulugal11 said...

I agree with you on this point. Many people see a raise as an excuse to raise the standard of living.

I think it might be hard for your friend to cut back completely because of his mindset...but if they could split the raise and use part for increased standard of living and part for debt payoff that might be easier.

I do this myself, when I get 'extra' money I put 60% into savings and use the other 40% for nice stuff. That way I don't feel deprived or frustrated that I got more money but can't have anything....but my debt snowball gets a boost as well.

t-luck said...

Something better than what I'm already doing! -splitting the raise.

Maybe I'll suggest this to him. But at the end of the day, like you say, its the 'mindset' that matters.