San Mateo, CA, September 16, 2011 --(PR.com
)-- Economists might debate whether the United States remains in recession, but there is no doubt the economy remains troublesome for many Americans. That makes it more important than ever for individuals to manage their personal economies to avoid excess debt, said Kevin Gallegos, vice president of Freedom Debt Relief (FDR) LLC.
“With all the attention this summer on the U.S. Congressional debate about the debt ceiling, it is natural for individuals to be concerned about their own levels of debt, and how they will find debt relief,” said Gallegos. “The lessons of the national debt debate definitely translate to personal debt. Smart consumers will take this opportunity to evaluate their financial situations and determine how they can make intelligent choices that will benefit their futures.”
Gallegos suggested individuals take into account the following ways to address their own debt situations:
A balanced budget is of paramount importance. Anyone who opened a newspaper or turned on the television this summer likely noticed that the debate in Congress centered on familiar terms: spending, income (in terms of taxation) and debt. Personal finance is similar, Gallegos pointed out. “Individuals cannot change their incomes by levying taxes – for better or worse,” he said. “They do, however, face tough decisions about spending and debt.” Gallegos and his firm advise an annual review, like the government’s budget discussions, to check for the following:
1. Live within your means. Tally monthly expenses, as well as income. Expenses that exceed income create a budget deficit. Like the government, people in this situation need to either increase income or cut expenses to avoid going into debt. If you are considering taking on debt, ask yourself if it is a healthy or unhealthy debt. Healthy debt typically refers to debt incurred to purchase an item whose value lasts longer than the debt itself (see No. 4).
2. Make a plan to repay any existing debt. Debt is a drain on a balance sheet. Develop a plan to repay it as soon as possible. The reality is that the only way to pay down debt is to spend less than you earn, so that there is money left over at the end of the month to go towards paying down the debt.
3. Change habits to build a stronger future. Some people see their finances continually going into the red due to spending or an unsustainable lifestyle. Others face challenges – sometimes created by the current poor economy, such as with job loss or continued underemployment – that cause financial problems. “People should honestly evaluate their habits and situations to eliminate the factors that are creating an unsustainable lifestyle,” Gallegos said. “Like government’s budgetary talks, spending choices can be tough, but they are necessary to survive.”
4. Evaluate good debts vs. bad debts. Sometimes, debt can be a useful tool, whether for households or governments, Gallegos noted. However, he defined positive debt only as money borrowed to invest in the future. For individuals, this might include a home mortgage. It also might include debt accrued to secure an education, which in turn will result in greater earning power and more career satisfaction. Business investments, if undertaken wisely, also can be considered positive debt. “As the government debates showed, debt can be a divisive topic, and choices about debt can vary depending on values,” Gallegos said. “Do not make excuses for debt. Be realistic and act cautiously to avoid taking on too much debt.”
5. Know the options for dealing with too much debt. “The federal government has more flexibility than individuals when it comes to debt. After all, the United States can print more money and devalue the dollar before it needs to consider actual default,” Gallegos said. “Consumers don’t have this option.” Consumers must first recognize signs indicating the time to consider help. These signs include not being able to pay all bills on time (or at all), receiving collections calls, or juggling due dates to manage even minimum payments. Those who need help then can consider all options, including debt management, debt consolidation, bankruptcy and debt settlement (also known as credit advocacy).
“Like the solutions the U.S. government faces, some choices can result in a lowered credit rating for individuals, but the most important thing is to survive and move to a more stable future,” he said.