Unnecessary spending multiplying debts

If debt reduction is one of your financial goals, there are three steps and one golden rule that you should follow.The first step is to identify the type of spending you have already made, or can do, in two categories: investment and consumption. Investment is all the expense you make for the purpose of having return in the future. If you apply money to open your business, this is an investment.

Consumption is all the remaining expense

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Likewise, if you need a computer to work with, this is also an investment. And if you bought the home by making an appraisal of its potential appreciation, it’s also investment. Consumption is all the remaining expense. Whether it’s the grocery store, the clothing store, a vacation trip, or even the computer you bought for work, if it’s too expensive for what you actually need.

The second step is to identify which monthly installments are crushing your budget. Make a list on paper or on a digital worksheet where you can see all the numbers at once, as this helps control. It could be the house, the car, the interest of the credit card, etc. Determine what percentage these debts take from your monthly income.

Make a decision and eliminate the benefits

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In the last step, you make a decision and eliminate the benefits until you reach a percentage of the monthly income that you feel comfortable with, starting with consumer debt. These are the most difficult to eliminate and therefore it is important to adopt a debt reduction plan before it rises to default. If you have invested in a home, you can try to sell it and move to a smaller one. If you have traveled, nothing else remains but pay the credit.

Avoid unnecessary spending

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And here comes the golden rule: before, during and after all this process, avoid unnecessary spending, that is, control consumer spending that will lower your budget. If you are not sure you can afford that outfit or shoe you saw at the store, think twice about making one more credit. And, especially, do not lie to yourself, saying that buying a clothing is investing in your image and that this will bring advantages at work. Evaluate very well the expenses you have already made and those you hope to do. Only then can your debt reduction be a success!

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