Debt

If you are in debt, you are not alone. Sometimes it is hard to know – or admit – if you have a problem with debt. It can be overwhelming to realize that you have gotten in over your head, and to worry that you will not be able to pay back what you owe. The key to getting out of your situation is to act now. Do not procrastinate. Taking charge of your finances and creating a plan for tackling your debt will cut down your anxiety and get you on the path toward a better financial future.

First, ask yourself whether debt has become a problem for you. Here are some circumstances that might indicate it has:

• Next month's bills arrive before last month's have been paid
• Your bills often include late fees
• You avoid opening bills when they arrive in the mail
• You procrastinate managing your account
• You bounce checks

Write it Out
Do you actually know how much debt you have? Many people don't. Start by making a list of everything you owe, whether it is a mortgage, a credit card balance, a student loan or even money you borrowed from family or friends. Write down:

• The lender's name
• The amount you owe
• The term of the loan
• The interest rate and fees

Then total them up. Looking at the numbers can be worrisome, but this is a necessary first step to tackling your debt.

The power of 50
Paying the minimum amount due on your credit cards is one of the fastest ways to fall further into debt, and it can keep you in debt for years or decades.

If you have a credit card with a HK$3,000 balance at an annual interest rate of 18%, and you pay only the 2% minimum monthly payment of HK$60 per month, it would take you almost 8 years to pay off your bill. Not only that, your cumulative repayments would have totaled HK$5,587 – almost double the HK$3,000 you thought you were spending when you made the charges.

Paying just HK$50 above the minimum amount due each month will make an incredible difference in how quickly you can pay off what you owe. If you pay an additional HK$50 per month toward your HK$3,000 balance for a total payment of HK$110 a month, you could pay off the debt in 3 years, instead of almost 8 years, and save yourself over HK$1,700 in interest.

Be realistic
Now that you have analyzed your debt situation, it is time to look at your monthly budget and set realistic goals. That trip you had planned for next summer, or the new car you were hoping to buy may not be in the cards right now given your new outlook on reducing your debt. Use this free Rework Your Budget calculator to help you get your budget back on track.

Don't get discouraged
Reducing debt is like losing weight. You are not going to lose 50 pounds in a month – you need realistic goals in a reasonable time frame. Debt works the same way. For most people, it takes years to become debt-free. This does not mean you have to stop enjoying your life. It is just a reminder to live within your means and be diligent about adjusting any spending habits that have contributed to the situation you are in today. Dedicating yourself to paying off what you owe and becoming debt-free will be worth the wait, with the payoff being a brighter financial future.