Don't Take On Additional Debt Unless You Have To

Buy things you need, not things you want. Always shop around for the best prices, but be careful to remember that the best prices may not get you the best quality.

The worst thing you can do during a recession is to take on additional debt. Although you may have a solid job and good income right now, things could change overnight. Your job might find it necessary to start laying off, or in a worst case scenario, close down completely. And with many jobs today, employees are having to take pay cuts or go to a shorter work week, losing those extra days work on their paychecks.

The smart thing to do is to be patient. Patience is the key to making good decisions during periods of recession. Keep your eyes and ears open and wait until the economy starts showing signs of improving before making big purchases unless they are absolutely necessary.

If at all possible, do not use credit cards. Credit card debt has become a major burden for many people who are finding it almost impossible to get rid of. One or two credit cards are great to have in case of emergencies, but not to use for frivolous purchases or to live on. Paying cash is the best option and you should always have enough cash set aside to take care of you and your family for at least four to six months or longer.

• Credit card debt has ruined the credit ratings of many people and is one of the reasons so many are finding it necessary to declare bankruptcy.
• The way the high daily compounded interest is calculated on credit cards, even if the balance on the card is just a few thousand dollars, if you pay just the minimum payments on them every month, it will take many years to pay off the remaining balance.
• In fact, many people may never pay off their credit card debt.

If you decide to buy a home, make sure you get a fixed rate loan. Even though interest rates are low at the moment, they may go up suddenly so stay away from adjustable rate mortgages. Today, as you should already know, the real estate market is flooded with foreclosures and short sales. This may seem like an opportune time to buy a home, and it is, but there are still some things that should be considered.

• Is your job secure for the long term?
• Can you make the payments by yourself if your spouse is laid off or one or both of you have to take a pay cut?
• Is the price on the home going to remain steady, go up, or go down? You don't want to buy a home and then find yourself owing more on the home than it is worth.

Although car dealers are offering what seems to be great incentives, such as dealer discounts, rebates and 0 interest loans, unless you absolutely need a new car, you may want to keep the one you have for a little longer.

• Cars don't go up in value. In fact, they start losing value as soon as they are purchased and driven off the lot.
• Although auto dealers are trying everything they can to make cars more affordable, they are still very expensive and the payments are still going to be high.

Remember, debt is a burden regardless to how much it is and regardless to your ability to pay it back. Don't put yourself in a position that will hurt you even more in the future. If you don't make your payments as scheduled, your credit score will drop and that will make it harder for you to get credit in the future if you need it.

Everyone should plan a budget to meet their spending goals and use financial common sense. The best plan of action in today's' economy is to stay away from unnecessary debt. It may be hard to do, but in the long run, it will help secure your financial future.

Finance Topic of the Month: Why Is It So Hard To Get Out Of Debt?