Avoid the Uphill Battle and Downward Spiral By Staying On Top of Your Mountain of Debt

Many wealthy individuals who once stood atop the peak of financial stability have fallen into seemingly irreversible downward spirals. With their “heads in the clouds” and their focus shifted more towards enjoying their stay on the summit, a sudden gust, or perhaps a relentless blizzard of bills, suddenly sends them over the edge and into a rapid freefall. Still, there many others who were never on top of their ever-growing debt mountain to begin with, and are therefore engaged in a treacherous uphill battle. Regardless of which of these scenarios best describes your situation, the following 3 tips should help you surmount your debt mountain and build a fortress at the top:

Navigating The Slippery Savings Slope

While it is good to save money, you don’t want to neglect interest-gaining debts just to make the digits in your savings account rise. In fact, letting loans and credit cards go unpaid will ultimately result in a long-term loss that is equal or greater to the amount you attempted to save. When you default on a loan or make late credit card payments you’ll have to deal with penalty rates and late fees. Analogically speaking, saving too much while in debt is the equivalent of treading along a slippery slope barefooted while wearing a huge backpack, because you leave yourself unprotected and overburdened.

Getting Your Survival Priorities Straight

When you’re tumbling down a mountain, or climbing up one, you have to quickly prioritize your actions to survive or continue your ascension. Should you start a fire and camp for the evening, or continue pressing on for a few more hours until the sun sets? Crucial decisions like this are also faced by people who are in debt, as they have to decide the order in which debts are repaid and how much to allocate to each financial obligation.  As a rule of thumb, try to repay debts that have high interest rates or are secured by an asset. If you default on a secured loan you’ll lose whatever was used as collateral (i.e. – property), and if you neglect high interest debts the mountain will continue to grow until it is insurmountable. Another strategy is to repay the smallest commitments first to gain a sense of progress and begin chipping away at the overall debt.

Consolidating Debts to Stay On The Straight and Narrow

A wise man once said “there are many paths that lead to the top of the mountain.” What he forgot to tell you is that not all paths are easy to hike and there’s only one that is the fastest and safest. When you consolidate debts you bring all of the alternate paths into one straight and narrow walkway by eliminating the need to prioritize. In addition to simplifying financial management, consolidating also lowers the amount of interest owed in the long-term because it brings all of the debts under a single reduced rate. Furthermore, payments are spread out over a longer period of time so your monthly obligations will be less, yet you’ll be repaying all of your outstanding debts simultaneously.

Jason Ramsey is a full-time personal finance blogger who specializes in formal debt relief procedures like trust deeds.

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