Most people have debts of some sort. According to a recent report from MSN Money, Americans have accumulated over $2 trillion in creditor debt. This breaks down to an average debt load of $20,000 per U.S. citizen.

Debts have a way of sneaking in and quietly accumulating. A large percentage of middle-class Americans carry a home mortgage loan, automobile loans, student loans, and credit card debt. People who cannot afford monthly expenses often use credit cards to pick up the financial slack. When the debt load becomes overwhelming, debtors often turn to personal bankruptcy in hope of eliminating financial burdens.

One of the biggest challenges Americans face is overuse of credit cards. The average consumer carries five credit cards. When people use credit cards for daily expenses or unnecessary items, and are unable to pay the full balance, they rack up additional debt by accumulating interest charges.

Consumers who pay minimum monthly payments will never break free of credit card debts. Every month interest accumulates and continuously increases outstanding debt. When consumers pay late or exceed their credit limit they are faced with additional charges that can add up to several hundred dollars in extra debt.

In order to stop being indentured to lenders and credit card companies, debtors must become proactive and develop a get-out-of-debt plan. The first step requires debtors to thoroughly review income and expenses. If income is less than expenses, or when income barely covers expenses, it is time to take drastic action.

People are often unaware of how much money they waste. One effective strategy to determine where money is spent is to track every penny spent for a minimum of 30 days. Most people are astonished to discover how much they spend on impulse buys and unnecessary items.

One prime example of wasted money is the cost of gourmet coffee drinks. The average cost of a latte is $3.00. Consumers could save $15 per week by eliminating this one expense. Over the course of one year that $15 savings turns into $780.

A variety of debt help options exist. The most affordable option is budgeting. The concept is simple. Determine how much money is required to cover monthly expenses and do not spend more than is earned. But, this can be easier said than done.

Most Baby Boomers grew up in households where budgets were incorporated. Many parents used envelopes to set aside money for upcoming bills. Extras were only allowed if the budget could accommodate the expense.

Today, debtors can use budgeting software to help them stay on track. Some banks offer the option to use electronic ‘envelopes’ to set aside funds for recurring expenses. The Internet is a great source for comparing banks and obtaining budgeting information.

Debtors who are unable to stick to their budget may want to obtain credit counseling. Many agencies offer discounted rates to debtors who cannot afford fees. The Justice Department website provides a list of nationwide credit counseling agencies, along with debt education programs via their website at Justice.gov.

Debt consolidation is an option offered to homeowners with accrued home equity. Debtors take out a second mortgage using their home as collateral. Funds are used to pay off outstanding debts.

Debtors must be able to qualify for a home equity loan. Banks typically require borrowers to have a good credit rating and solid work history. Borrowers should carefully weigh the decision of using their home to pay off debts, as real estate can be at risk for foreclosure if debtors default on their home equity loan.

Debt settlement and personal bankruptcy are considered radical debt relief options. Debt settlers charge an upfront fee and monthly maintenance, which can often equate to the amount of negotiated debt.

New bankruptcy laws require debtors to establish a payment plan which can extend for 2 to 3 years. Debtors are not allowed to incur new debts during the repayment phase. The blemish of bankruptcy remains on credit reports for 7 to 10 years.

Instead of perceiving debt reduction as an impossible task, think of it as a game. Find ways to reduce spending and use savings to pay off debts. With practice, debtors can become a master at their money game. By tackling debts now, debtors can secure their future and live comfortably when it’s time to retire.

Author Bio: Real estate investor, Simon Volkov shares money management information and resources via his website. He offers an article library covering topics of how to reduce debts and regain control of personal finance, along with ways to avoid bankruptcy. Discover debt relief options at www.SimonVolkov.com.

Category: Finances
Keywords: debts,debt consolidation,budgeting,credit counseling,home equity loans,debt consolidation,bankruptcy