Saving money and eliminating debt is the topic du jour in personal finance. These days everyone is looking for ways to do either or both of these things. It takes a lot of hard work, but it is possible to take control of your existing debt and learn to live life within your means from here on out.
Here are five important ways to help you along the way to debt free living:
1. Stop using credit cards for purchases you can’t afford
A leading indicator of a coming economic crisis is when everyday people are buying things on credit they cannot afford to pay off immediately. It feels great to live like there’s no tomorrow when times are good. When the economy turns and there are layoffs, the good times will end quickly and painfully.
• Minimum payments will keep your debt growing because every month interest costs continue to accrue on top of your original balance.
• Don’t fall into a cycle of endless credit card debt. Avoid the added interest expense by paying cash for things you buy. Using credit cards to make transactions easier is okay, but only buy what you can pay off in full before you bring it home.
• If you’re diligent you can earn cash back, airline miles, or hotel points by using rewards credit cards. This should solely be an added bonus though and not a reason to spend extra money that you don’t need to.
2. Buy luxury items with cash
We all want to enjoy the finer things in life, but using credit to get them is a dangerous path to take. You’ll be much better off if you pay cash, rather than ongoing monthly payments.
• Long after the excitement wears off after taking an extravagant vacation or buying a new toy, you’ll be faced with credit card payments that strains your budget month after month.
3. Include debt repayment in your budget
Figure out how much you need to pay on your credit card balances each month in order to pay them off in a set timeframe. Set that money aside first before figuring out how much you can spend on everything else.
• Your budget should consider all facets of your lifestyle, including housing, food, and clothing, household essentials, savings, recreation and repayment of debt.
• If your budget doesn’t allow room for debt repayment, there will never be enough money to pay off your debt. Take control of your financial situation by working with a realistic budget every month. It won’t be long before see your debt disappearing and seeing your savings grow.
4. Seek out the assistance of a professional
It is always wise to to seek out the advice of credit counselor, family accountant, or certified financial planner. With a good accountant or advisor you should be able to make back their fee and then some in tax savings or investment planning . If you can’t see how they are helping your bottom line, ask them. They will be more than happy to prove their worth so they can earn that next fee!
5. Negotiate a better rate with your bank or credit card company
Almost everyone assumes they can’t do anything about a high credit card interest rate or a low interest rate on a savings account. This is not true!
• Talk to your bank about how you can qualify for the best treatment. It may take time or additional funds being deposited, but you can get the very best deal if you just ask. If you’ve been a good customer for a long time, you may be surprised at how willing they are to budge.
• If you have your funds spread across multiple banks, you may get a better deal if you consolidate into one institution.
It is possible to eliminate your debt problems and learn to avoid creating them in the future. Following these steps will keep you pointed in the right direction and get you started on a new path to financial freedom and prosperity!