Getting in good physical shape is a worthy goal for the new year but why not pledge to eliminate debt, too? It’s a good time to stop making excuses and face reality with your debts, especially if they’re holding you back from purchasing a home, saving for retirement, or taking that dream vacation.
You have to start by recognizing your problem. You might be spending more than you make and putting expenses on your credit cards. You might be making only minimum payments on your debts each month and blowing the rest of your money. Either way, it’s time resolve your problem.
Begin by making a budget. Write down all of your monthly expenses and subtract that total from your income. The amount left over is what you have that can go towards your debts.
Remember, when doing your budget you must keep track of where your money goes. Every penny counts. The 99 cents you spend on coffee at the drive-thru counts. Keeping up with your spending can be the most challenging event in budgeting but hang in there; it will become a natural habit before long.
Our MyBranch Online Banking with PFM can help. It provides a multitude of functions that include monitoring income and spending and creating budgets and reports.
Cut back on your monthly expenses to add additional funds to paying off your debts. Realize that this is going to take self-discipline but it can be done. A typical family of four can live off a grocery budget of $400 a month.
Go slow. You can’t cut your grocery expenses or dining out expense drastically the first month. If you set an unrealistic goal and you don’t meet it, then you are going to give up. You have to make a goal and then take the appropriate steps in getting there.
Example: If your grocery expenses are currently $800 and your goal is to get it down to $500, start by taking off $100 each month. So, the first month your goal will be $700, then the second month $600 and then by the third month you will be able to hit that $500 mark and it not be such a shocker.
Make a list of all of your debts, including the balance, minimum monthly payment and interest rate. Most people are more successful by paying off the smallest balance first as it provides more motivation. Do what you feel is most comfortable. If you want to pay off the loan with the higher interest rate first, put it at the top of the list.
If you cut that extra $300 off of your groceries and apply it towards your debts, it can save you a huge amount of money.
Example: You owe $30,000 in credit card debt, your average interest rate is 10.9 percent and your minimum monthly payments total $600. By paying the minimum payments it will take you 67 months to get out of debt and you will pay back more than $10,000 in interest. If you add that extra $300 a month to your payments, you will then be out of debt in 40 months and only pay back $5,800 in interest.
Understand that to let go of debt obligations you must make a commitment and stay focused. Many people can’t fight this battle by themselves and need financial counseling. Don’t be ashamed, seek help. Don’t let all of this debt hold you hostage.
by Jennifer Panther, Financially Focused, Inc..