Becoming the Best Manager of Your Personal Debt
Most Americans struggle with paying accumulated debt. Many have struggled through the recent financial recession and continue to struggle during this sluggishness economy. Debts incurred when “times were good” still haunt some as they work hard to pay the debts, while stagnant salaries and groceries prices continue to haunt them. A plenty of personal loans for people with bad credit.
In the midst of this, there is hope. You can take control of your finances by taking control of your finances. In the early 2000’s, when the real estate market and the economy was good, I believe some of us enjoyed our ability to spend and sell a little too much. Young couples were buying houses that were completely out of their league, and banks were more than willing to lend the money. This led to overspending and piles of debt, while trying to live up to the new status as a luxury home owner.
Although many of us have found ourselves in the predicament just described, there is a hopeful outcome to all of this. You can take steps toward gaining control of your finances, paying your debts, and creating a comfortable financial situation. It just takes discipline and the ability to take advice.
There is so much information available that will help you in this quest. Here are five simple steps to get you on your way. I say simple, because the steps are simple; however, the discipline is what you have to reach deep inside for to stick to the plan. First, you should get control of spending. Second, you should BUDGET. Third, come up with a plan. Fourth, figure out which expenses you can live without. And last, find a way to make extra money.
The plan is simple, but the execution of the plan can be tricky. The trick however is very simple: we must learn to spend less than we earn. This is an old bit of advice, which we all seem to accept willingly. The reality is that most of us truly think we live by this advice, but after close inspection we may realize that we really do spend more than we make. We do this by making rash decisions, emotional purchases, and allowing our wants and the wants of our children to cause us to overspend. This might be because we have allowed these wants to be disguised as needs.
The first step in conquering debt is to get control. Everyone functions better on every level if they are in control. Our finances, if not under control, can send us into a downward spiral if we don’t feel that we are in control. A way to understand your financial situation and determine the best way to conquer debt is to track your spending. This can be accomplished by simple discipline. Just as you would keep a food journal if you were trying to lose weight, you should keep a spending journal if you’re trying to understand you finances. This can be done by simply keeping a small notebook in your pocket or purse and writing down every purchase you make. Just as the food journal makes you realize how you are over eating, a money journal can help you to understand unnecessary purchases that you and your family make on a regular basis. Once you have determined where your money is going, you are ready to come up with a budget.
Although a budget is something we dread it can actually be a fun experience if approached the right way. The first part of budgeting, admittedly, can be painful, but if you gain control of your money you will be suddenly empowered. There are many different approaches to budgeting. With a plethora of budgeting apps, programs, and designs at hand, sometimes we over complicate the entire process. And what happens when things are over complicated? We give up. Everyone has a different style, for some keeping everything on their phone is best. These types can keep up with their calendar, social life, and shopping all with their phone. For others, the old pen and paper can be their best friend in budgeting. Whatever route you take, make it work for you. List your income and every expense. For some making a yearly budget works, with specifics for each month. Still others create a new budget at the beginning of each month to compensate for birthdays, trips, sports, etc. The key is to figure out what works for you and make it fun by including the entire family in the process.
- Get Out Of Debt
As you begin your quest to pay off debt, you should first create a “nest egg” or emergency fund. There are many different opinions concerning how much you should have in your emergency fund. Some say $1,000 and others suggest higher amounts. What you should consider is how much it takes for you to live on each month and also what it would take to sustain your household if for some reason you didn’t have an income. Most people think they’ll be okay, but you never know when you might have a loss of job, fall sick, or a family member falls sick and you are required to travel or take time off of work. These are things that we don’t like to think about, but it is necessary to consider these things when coming up with an amount for your emergency fund.
After you have created your “nest egg” it is time to tackle your debt. You have two different approaches to consider: highest interest rate or smallest amount. In the long run, you will pay less by tackling the highest interest rates first. For short term feeling of accomplishment, the smallest amount works best. For me, I prefer to tackle the smallest amount first which gives me the double pleasure of quicker reward as well as removing one payment from my list of monthly debts.
- Cut Expenses
Now that you know where every penny goes, you’ve created a budget, created an emergency fund, and come up with a plan to tackle debt, it’s time to cut expenses. You know what you’re spending and amount of your expenses. Now, see if there is something you can live without. A lot of time, once you see your money journal and realize that you may have an $80 a month coffee habit, cutting expenses occurs naturally. As stated before, when we realize how much we spend on a weekly basis and what we spend it on, we realize that there are things we can live without. So, some items will automatically drop off the list of expenses. Others, like cable t.v., landlines, groceries, dining out, etc. should take a second look. There are many options to cable t.v. today and we have to look at how important it is to us and consider our options. Telephone service is another expense to consider. There are several very economic alternatives to cell service that actually use the major companies’ cell towers. Right now we spend less than half of that amount of a major company contract while not sacrificing service coverage and still receiving unlimited talk and text. As for groceries, paying attention to what is on sale and using coupons benefit the budget tremendously. It’s all about considering what is necessary and determining if it is worth spending the money.
Everyone’s situation is unique. For some a side job will provide extra income to pay off debt. For others, working a few overtime hours works beautifully. This is the part of debt reduction in which we must get creative. There are millions of ideas of how to make money “on the side”. A quick google search will bombard you with ideas. Some jobs can be done at home, some are jobs or services that you can create to bring in extra income, and there is always pizza delivery or other jobs that can actually amount to an extra payment on one of your bills. Everyone’s situation is different, I know. You may be a single parent without the extra time to sacrifice, or you may have a young family that makes it necessary for you to be at home after normal working hours. You must decide what is within your means and go for it. Just remember, there are numerous on-line options that are available for you to explore.
- Debt Counseling
Remember; make your plan work for you. Your situation can change for the better if you come up with a plan and stick to it. If you are still struggling, don’t be afraid to get help from professionals. There are plenty of debt counseling services available, some absolutely free, to help those struggling with debt. They can help you with negotiating interest rates, budgeting, and even offer advice on consolidation loans. Debt counselors can help you come up with a plan using different tools. They have at their disposal information about personal loans that can be taken out to consolidate your debt into one loan. The counselors can also give advice on how to transfer credit card debt to a lower interest rate card or negotiate with the card company that you already have for a lower rate. There are risk and things to understand about transferring to other credit cards. They often have teaser rates that may end up hurting you in the end if you don’t pay the debt within the amount of time that the rate is effective. Also, if student loans are drowning you in debt, they can help you with information on how to consolidate or reduce the amount of the loans.
Remember the most important factor in managing your personal finances is to get control. This allows a sense of accomplishment and gives you peace of mind. It’s always better when you look at your bank statement and you understand where your paycheck went instead of looking at your bank statement and scratch your head wondering where it went. Control and determination can help you meet your goal of successfully managing your debt.