Money Matters: Take Charge of your Finances and Get Out of Debt
A lot of people have problems admitting they are in debt and there’s an even higher number of people who don’t even realize it. It’s overwhelming and can make you feel like you have failed and might never be able to dig yourself out.
But that’s not true.
Consumer debt in America is extraordinarily high. But you want to act now, not procrastinate and take charge of your finances. There are several questions you can ask yourself. The following questions and tips come to us from “Practical Money Skills for Life”.
First, ask yourself whether debt has become a problem for you. Here are some circumstances that might indicate it has:
- Next month’s bills arrive before last month’s have been paid
- Your bills often include late fees
- You avoid opening bills when they arrive in the mail
- You procrastinate balancing checkbooks
- You bounce checks
Most people have no clue just how far into debt they are. Start by making a list of everything you owe, whether it’s a mortgage, a credit card balance, student loans or even money you borrowed from family or friends. Write down:
- The lender’s name
- The amount you owe
- The term of the loan
- The interest rate and fees
Then total them up. Looking at the numbers can be worrisome, but this is a positive – and necessary – first step to tackling your debt.
The next step is taking a good hard look at your credit cards and how much you pay on the charges you make. If you jsut pay the monthly minimum, you are just creating more debt for yourself and giving more money to the credit card companies. There’s a reason they give you a monthly minimum…they make more money off of you!
If you have a credit card with a $3,000 balance at an annual interest rate of 18%, and you pay only the 2% minimum monthly payment of $60 per month, it would take you 8 years to pay off your bill. Not only that, you will have paid $5,780 by the end of the 8 years – almost double the $3,000 you thought you were spending when you made the charges.
Paying just $50 above the minimum amount due each month will make an incredible difference in how quickly you can pay down what you owe. If you pay an additional $50 per month toward your $3,000 balance for a total payment of $110 a month, you could pay off the debt in 3 years instead of 8, and save yourself over $1,800 in interest. Imagine what you could do with $100 more per month.
But if you can pay an additional $50 per month on that debt, for a total payment of $110 a month, you will pay down more of the $3,000 you originally owed. And that means less money for the creditor to charge interest on. As a result, you would pay off the debt in 3 years and save over $1,800 in interest payments.
Now that you have analyzed your debt situation, it’s time to look at your monthly budget and set realistic goals. That trip you had planned for next summer, or the new car you were hoping to buy may not be in the cards right now given your new outlook on reducing your debt. Use this free Rework Your Budget calculator to help you get your budget back on track.
Reducing debt is like losing weight. You’re not going to lose 50 pounds in a month – you need realistic goals in reasonable timeframes, and debt works the same way. For most people, it takes years to become debt-free. This doesn’t mean you have to stop enjoying your life. It’s just a reminder to live within your means and be diligent about adjusting any spending habits that have contributed to the situation you are in today. Dedicating yourself to paying off what you owe and becoming debt-free will be worth the wait, with the payoff being a brighter financial future.
- How You Can Effectively Repair Bad Credit (boldstate.com)
- Tips for Credit Card Debt Reduction (ally.com)
- Should You Consolidate Your Bills? (pro2sell.com)