The freewheeling credit abuse days of the early 2000s are now long behind us. But it's still pretty easy run up debt in America, especially if you're part of the military community. Here are five tactics to help you avoid being on the wrong side of the statistics.
Related: Here's Your 4-Step Battle Plan For Better Spending Habits »Understand your debt-to-income ratios.
Its hard to know if youre doing a good job managing your debt, if you could do better, or if you could do a lot better. To get an idea, determine your debt-to-income ratios for consumer debts (auto loans, student loans, credit cards, etc.), housing debt, and total debt.
Try out this basic DTI worksheet to get started. Don't feel compelled to incur debt up to these levels. Debt is definitely a case where less is more.Tweak your financial habits.
If you've already fallen in the high-interest debt trap, here are some steps you can take to find a way out:
It can be reassuring to know that if you ever find (or have already found) yourself in too deep, theres help. Take advantage of free and low-cost credit advice. Your installation's family support center likely offers free credit counseling. The National Foundation for Credit Counseling also offers excellent nonprofit credit counseling programs.
Personal financial counselors can help you establish a spending plan that includes restructuring your spending, and developing a plan to get you out of debt. Seeking out counseling may even increase your options for paying off your debt. So, while you may be down, youre never out. Theres always good help nearby if you're willing to put in the effort.Don't rush toward bankruptcy.
While occasionally filing for bankruptcy may be the only way out, dont use it as the easy way out. Bankruptcy can remain on your credit report for up to 10 years, preventing you from purchasing a home or vehicle, renting an apartment, getting new credit, or even being offered certain employment opportunities. It can also be problematic for security clearances.Think hard before you take on new debt.
As you try to reduce your debt, it is obvious that new debt isn't something you jump into blindly. No matter how compelling the reasons make sure you consider all the variables by analyzing what I like to call the RIFF -- repayment terms, interest expense, future income, future situation -- before you act.