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5 Tips To Get Out, And Stay Out, Of Debt

From The Pennsylvania Institute of Certified Public Accountants

PHILADELPHIA PA – Are you carrying a large amount of debt? If so, you’re not alone: on average, American households have about $15,000 of credit card debt, according to NerdWallet.

If you’re struggling to pay off outstanding balances, or if you’re tired of high interest costs, the Philadelphia-based Pennsylvania Institute of Certified Public Accountants explains the best ways to get out from under those bills.

Start Spending Less

It sounds easy, but we all know that it can be pretty tempting to whip out the credit card and go completely off budget.

To solve that problem, leave your credit cards at home and resolve to rely on cash throughout the day. In addition, delete your credit card information from online merchants you visit most frequently, so it’s a little harder to make an impulse purchase and you have time to reconsider.

When you’re about to splurge, ask yourself if your purchase is worth the interest costs you’ll pay if you charge it and don’t pay off your balance immediately. You may find it’s easier to bypass busting your budget.

Budget, Budget, Budget

It’s tough to determine how much spending is too much unless you know what you can afford to spend each month.

When you create a budget, add up your monthly income, then subtract your recurring expenses, such as rent or mortgage, food, commuting costs, and, of course, regular debt payments. Remember that if you overspend what remains, it will just increase your outstanding debt balances.

Pay Off Problem Accounts

If you have a manageable mortgage with a low interest rate, erasing that balance will not be a high priority, especially since you can deduct the interest payments on your tax return if you itemize. High-interest charge cards are another story.

Your best bet is to economize enough to pump up your payments and get rid of those balances entirely. If that’s not possible, shop around for a credit card that offers a lower interest rate and aim to pay more than the minimum balance every month, without adding any additional debt.

You may be tempted to pay off a low balance first, but if the interest rate on that account is reasonable make high-interest accounts a priority.

Dedicate Windfalls to Debt

Did you receive a tax refund this year? Or maybe you’re expecting to get a bonus at work?

It’s natural to want to use some of that money for fun, so set aside a small percentage to put toward a vacation or other indulgence. Use the rest, however, to lower your outstanding balances. In fact, whenever you find yourself with extra funds, earmark some for debt payments.

Once you get in the habit, you’ll find it’s much easier to maintain smaller balances or even eliminate them completely.

Reap the Rewards

When you pay off a big balance, give yourself a pat on the back and a nice reward. Give yourself an incentive to stick with your smart spending plan. But think small; you don’t want to undo all the good work you’ve already done. Plan a weekend away at a local amusement park, for example, instead of a week in the Caribbean.

Whether you’re wrestling with debt or tackling other financial issues, a certified public accountant may be able to help. He or she can offer great ideas for managing your money. There are 300 institute members located in Montgomery County alone; find them here.

This Money and Life Tips article is a joint effort of the American Institute of CPAs and the Pennsylvania Institute of Certified Public Accountants, as part of the profession’s nationwide financial literacy program.

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