Staying within a positive cash flow these days can be challenging. The price of gas seems to keep going up. Housing costs including utilities, maintenance, taxes and insurance have all risen. Groceries and consumer goods and services are more expensive. And the cost of borrowing money is on the rise. The cumulative effect of all these increases can have a significant impact on your family budget.
Rather than decreasing expenses when this happens, many people incur debt: using credit cards, taking out personal loans, relying on overdrafts, or drawing on lines of credit. In our enjoy-now-don’t-worry-about-the-payments society, it’s easy to accumulate a large debt fast. The problem is, debt weighs you down and keeps you from achieving your goals.
Here are some tips to help avoid financial disaster:
- Put credit cards away.
- Make a list of all debts and prioritize them by the rate of interest charged (e.g. highest interest rate to lowest).
- Review monthly expenses and look for opportunities to cut your costs.
- Create a monthly spending plan and track all purchases to help you stay within your budget and maximize your ability to pay down your debt.
- Establish realistic goals to pay off credit cards and other debt. Monitor your progress.
- Maximize your payments on the highest interest rate credit cards and minimize payments on the lowest rate cards.
- If you contribute to a savings plan consider suspending payments until you have paid off your debt. Consider using income tax refunds, pay increases, and other unexpected funds to pay down debt.
- Consolidate debts with a consolidation loan or transfer your credit card balances to a lower rate credit card.
- If you are overwhelmed by your debt, get professional counsel.
- If you find yourself deep in debt it may mean you need to sell off assets that can be used for debt repayment such as a recreational vehicle or a second car. You might also investigate consolidating debts by refinancing your mortgage loan. This may lead to lower interest costs and monthly payments.
Here are some tips for using credit cards wisely, and avoid ending up in serious debt:
- Don’t take your credit cards with you. Use them to make planned purchases that you know you can pay off as soon as the bill arrives.
- Use the card for just one type of purchase (e.g. gas).
- Request a low limit and don’t let the credit card company raise it without your permission.
- Be accountable to a family member for your credit card use.
- If you can’t pay the balance in full, put the credit card away until you have.
- Have only one card.
- Know what the terms and conditions of the card are.
- If you want to use a credit card to build up your credit rating, just use it for one pre-authorized monthly charge (e.g. newspaper subscription, gym membership) that you have budgeted for.
Without a plan in place to manage additional expenses, some people may find they are quickly traveling down a path of financial disaster. The first priority in achieving financial fitness is debt elimination. It makes no sense to save money at two or three percent, when you are paying 18 percent or more on credit cards.
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