Over the past two months we have expanded on some of the key principles of money achievement that were outlined in our 2012 Money Manifesto.

Whether it’s budgeting, saving, setting goals, debt management, creating income, investing or estate planning, there are some basic steps that are non-negotiable if you want to create a successful financial future.

Of all the money principles I’ve identified, I think the one that proves the hardest to master is managing debt. I always receive the most heart-rending requests for help from persons who are desperate about their debt.

Uncontrolled borrowing can not only destroy the lives of individuals and their families, but devastate entire corporations and countries as well.

If you’re bombarded with unpaid bills, past-due notices, demand letters and angry creditors; and you’re crippled by feelings of embarrassment, worry and despair, then it’s time for a change. If your debt is beyond your ability to cope and you’re tired of the burden that it brings, then let 2012 be the year that you break free of debt.

Make it your mission to take back control of your finances by getting rid of your outstanding loans. To be successful, you first have to address the reasons why you are borrowing, and then apply the right solution to fix the problem. Let’s look at some strategies that can help you accomplish this important money goal.

Is your debt a crutch?

With rising living costs and declining pay cheques, many people are currently dependent on borrowing to make ends meet. When the bills are due and the income isn’t there, you have to find the money by any means necessary, right? Wrong! As I have explained in past columns, if you rely on debt to meet your expenses, you’re only setting up yourself for financial disaster.

It’s impossible to successfully use debt as a source of income to plug the holes in your budget. While borrowing may seem like a quick way out of a shortfall, at some point you will have to repay the loans. What it does is further compound the initial cash flow problem; as you will still have your budget deficit to contend with, plus find extra money to pay back the debt and interest.

If you’re in debt because of a budget imbalance, you first have to admit that the only solution to your problem is to reduce your expenses or find additional income to meet them. Ask yourself – “How would I pay this bill, if nobody would lend me money?” Refuse to take on additional debt and force yourself to come up with more creative answers to your financial issues.

Your debt reduction plan

Use a detailed budget to identify areas where you can cut back on discretionary spending, such as food or entertainment, and put the extra money into debt repayment. If possible, sell possessions that can be replaced such as an MP3 player or television set. Your aim is to find as much money as possible to make a significant dent in your loan balances.

Sometimes, consolidating multiple debts into a single loan can help you to better manage the monthly repayments. With a consolidated loan, you can replace high-interest credit card debt, and reduce the overall interest paid. Even if you have to extend the life of loan for a longer period, at least it won’t be so much of a financial burden every month.

You could also choose to pay off each loan one at a time. Write down all of your loan balances and sort them according to size. Pay at least the minimum required on each loan, but focus on paying off the debt with smallest balance as quickly as possible. When that loan is repaid, apply the former monthly payment amount to the debt that is next in line until they are all finished.

Is your debt an addiction?

When you have become reliant on borrowing as a way of life, it can seem almost impossible to live without it. For some persons, using debt can become so habitual that they eventually become addicted to it. Despite their better judgment or firm plans to change, they usually find that they slip right back into the practice of borrowing money to buy things.

Most debt habits are fuelled by people’s emotional issues. If they’re feeling sad, angry or insecure, shopping provides retail therapy that helps them to feel better. Others are driven by the need to ‘keep up with the Joneses’, so they borrow to finance a fancy lifestyle. They are often ashamed to admit that they can’t afford their high standard of living and use loans to keep up the pretence.

If you recognise that you have a deeper problem with debt, then you will have to work even harder to break the cycle of borrowing. Along with applying the reduction strategy outlined above, you will need to get help for your emotional issues. Just like any other addiction, it is important to first admit that you have a problem, and then seek counselling and support to conquer it.

Copyright © 2012 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, March 1, 2012

Read another article about Debt Reduction Options:

Is Declaring Bankruptcy An Option?

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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl