Debt Management

Debt problems accumulate when you're unconscious about spending money. Often, it seems as if you'll never catch up. The situation may feel bleak, but the darkest hour is just before the dawn, especially if you choose to get out of debt now.

Make a budget

Nobody enjoys restrictions, but they're essential. Create a budget. Write down your necessary living expenses, including your mortgage, utility bills, car payments, credit card payments, etc. Then, review all your other expenditures, and choose to let go of some things that you don't really need. Bringing your lunch to work, eating out less, and watching home videos, are all simple ways to cut expenses.

Debt Consolidation

Consider managing your financial problems through a strategy of debt consolidation, in which you combine all your debts into one with a low interest rate. The goal is to lower your monthly financial obligations.

Refinancing and Second Mortgages

Your home can help you consolidate. One of the most common options is taking advantage of equity that you've accumulated in your home. This can be accomplished through either a second mortgage or a mortgage refinance. There are two types of second mortgages: home equity loans and home equity lines of credit (HELOC). With a home equity loan, you receive a lump sum, and pay it back on a pre-determined schedule for a fixed number of years. A HELOC works like a credit card: you have an available line of credit and can tap into it as long as you stay below the maximum allowable amount.

You can also refinance your mortgage. By choosing a lower interest rate, you may be able to reduce your monthly payment and take pressure off your pocketbook. For example, if you currently have a $150,000 30-year mortgage at 7.5 percent, and refinance at 6 percent, you would lower your monthly payment by $177, and save over $50,000 on a 30-year mortgage loan. Another benefit is that both refinancing and second mortgages offer tax deductions.

Don't panic if your debt seems like an insurmountable alp. By taking control of the situation and using the equity in your home, you can climb out of the mountain of debt.