Let’s face it, debt is stressful and the sooner you begin to make changes to get out of debt, the better your quality of life. The economy is in recovery mode but there are still too many consumers stuck under a mountain of debt.
Americans owe more than $1 trillion in student loan debt. The total credit card debt for all U.S. households is more than $850 billion, while mortgage payments add up to more than $8 trillion.
U.S. households owe more than $11 trillion in debt, up 3.7% over last year, according to the American Household Credit Card Debt Statistic. It’s time for consumers to take action and make financial changes.
A good plan you can stick to without feeling deprived is more likely to work for you in the long run. Here are a few steps to begin changing your money management style and get out of debt:
1. Create a Budget
Your first thoughts about a budget may not be pleasant but hold on, creating a budget does not have to be difficult. It is imperative to have a budget plan to get out of debt. You must have a visible way to see where your money is going and what you can cut back on. Basically, you want to include everything you spend money on in your budget. You may be surprised to see where your money is going and how you can save by cutting out frivolous items.
- Begin with your fixed expenses. Fixed expenses are your household necessities such as mortgage, rent, utilities, car payment and insurance.
- Next, tackle your variable costs, Variable costs can change from month to month such as groceries, cell phone, credit card bills, entertainment and clothing.
- Now, create a reserved budget. Reserved budget would be for things like dining out, vacations, hair stylists, haircuts and even pampering needs. Be realistic and set reasonable constraints on these items.
2. Cash, Cash, Cash
Using cash instead of credit and even debit cards can help you save money. Put your credit and debit cards away for a while and start using cash. Using cash makes you more aware of your spending habits. Pulling out a credit card may give you instant gratification but when you face the bill along with interest charges that gratification is long gone. Carry one primary credit card and use it only for emergencies only such as car or home repairs.
Put your debit card away and you will instantly see how much money you are really spending. Even though you have the cash in your checking account, actually forking over cash when making purchases will open your eyes to anything you really do not need and help you stay within your budget.
3. Revamp your Cable or Satellite Services
Save money on your cable or satellite services by limiting your premium channels and not ordering pay-per-view movies. You can save money each month by having just one premium channel instead of four. I doubt you watch all those channels anyway. Negotiate a better deal with your provider which means you may have to threaten to leave. It may be worth leaving considering the good deals most providers offer new customers.
4. Tackle Credit Cards and Department Store Cards
Stop using credit cards unless you plan to pay them in full each month. If you continue to use credit cards while attempting to get out of debt, you are setting yourself up for failure. Getting and remaining out of debt involves some behavioral changes. Stick to your cash and leave the credit cards at home. Pay more than the minimum due on credit cards and stay away from department store credit cards as they tend to have the highest interest rates.
5. Lower Your Credit Card Interest Rates
Lowering your credit card interest rates could save you hundreds, if not thousands of dollars. Call your credit card company and request a lower rate. Your chances are good if you have been a customer for some time, are not at your credit limit and have been making timely payments.
6. Balance your Checkbook
Not surprisingly, many Americans do not balance their checkbooks. What checkbook you say? See what I mean. Online and mobile banking is so convenient but it does not necessarily mean you are more informed about your accounts. Good old fashion basic math skills can save you a lot of money. Bank overdraft fees are about $35 these days. Don’t give the bank an unnecessary bonus. Balancing your checkbook whenever you transact business using your checking account (writing checks, ATM withdrawals, bank service fees), will save you money.
7. Create a Good Cushion
You never know when you’ll need money outside of your budget. Auto repairs, emergency travel, plumbing problems, a new furnace. You name it. The money you save by having a budget and sticking to it should go into a savings account. Having a savings account not only gives you peace of mind but also keeps you from incurring additional debt when an emergency occurs. Just as you have a budget, have a savings plan and pay yourself first. Start with at least 10% of your income and you may even want to include it in your fixed expenses budget as a line item.
A good rule to follow is to have at least 3 to 6 months of living expenses saved for emergencies and even temporary unemployment. The amazing thing about saving money is that the more you save, the more you want to save. You become accustomed to seeing that money in your savings account increase each month.
Earn some extra cash. Whether you are in a commission-based job, salaried employee or a part-time hourly worker, there is probably a way you can earn more money. Even if you have to pick up a second job it may be worth the time and sacrifice in order to get out of debt.