The biggest cause of debt is not knowing how to manage your money. If you spend more money than you earn, you accrue debt. Student loans, credit cards, car loans, mortgages, and payday loans are all forms of debt. Some are less problematic, but none are good to have. However, getting rid of consumer debt first is most important. If you can manage your money properly, you can avoid going into debt, and you can get rid of the debt you already have.
Track Your Spending
The more debt you have, the more you should put aside each month toward payments. Tracking your spending will show you where your money is going. What unnecessary spending is there? Are you wasting money? Track your spending to determine how to set up your budget, and continue tracking your spending to ensure you are staying within your budget.
Pay Off Your Highest Interest Loans First
Make the minimum payments on all your debt every month. This will make sure you don’t damage your credit. After that, focus all excess cash on the debt with the highest interest rate. Usually, that will be credit card debt. Pay off the highest card or loan first to minimize the amount of interest you pay in the long run.
Once the highest rate loan is paid off, focus everything on the next highest loan and so on. As you begin to pay off cards and loans, the amount of money going to each one will grow because you’ll have fewer payments.
Pay Off your Debt Faster
Some people are fine paying the minimum payments each month and maybe a little extra now and then. The problem with this is that it will take a lot longer to pay off, and you’ll pay a lot extra in interest. You are postponing all your financial goals as a result, goals such as saving for retirement, buying a house, and sending your kids to college.
Now is the time to make some sacrifices. Obviously, you’re not good at making financial sacrifices or else you wouldn’t be in debt. Acquiring the self-discipline now will help you now and in the long run.
- Downgrade your lifestyle.
- Live in a less expensive apartment.
- Cut cable television.
- Don’t eat out.
- Don’t buy new clothes.
- Go to the library instead of the bookstore.
- Stay home instead of going to the movies or taking a drive.
- Use coupons, and cut out junk food.
You don’t have to cut out everything you love to make a bigger dent in your debt. Cut back by half and then adjust it from there. You will soon experience complete debt relief and a sudden influx of extra money each month, money that was once going to debt payments.
Prepare for the Future
Use that extra money to prepare for the future. Save 8 months of living expenses in a high interest savings account. Set up a plan for retirement. Put money aside for big purchases such as electronics or vacations instead of using credit. Pay off your debt and avoid further problems with better money management practices.
Author Bio: Samantha Kay is a regular writer for Debt Consolidation Advice, a debt relief blog. She covers the debt relief industry as a whole and provides helpful advice on debt consolidation, credit counseling and other various money-saving tips.
How to Get Out of Debt When You Can’t Manage Your Money,
All debts are not created equal. If folks are worried about their humongous debt, then they must understand and follow one simple rule.
“You always save when you save before you spend.”
Get out of debt somehow and then to carry a clean slate all your life, just follow the above statement.
I agree with you Doable Finance but here’s another one “Before you know how much you can save, you have to know how much you spend.”
As I see it, the root of the problem is discipline. The discipline to spend less than you make. Pay yourself first is great advice and very important but if you save $10 but then go into debt $10 as a result of it, then you might be worse off because the interest on debt is higher than the interest on savings.
One thing I agree with in the article is that paying down debt is a form of savings and for many should be the priority over savings!
I agree with Jim here and the author. You need to start with your personal accounting to understand where your money goes before you can really take any actions. The saving plans and debt payment can then kick into gear.
This post is full of good advice. I agree with Passive. People need to know what they are spending and where they are spending it before they can make changes to get ahead. Because most people have so much revolving credit, they don’t realize that they have a monthly cash flow deficit. They don’t realize that credit card and line of credit balances are creeping up over time. Over the years, when I’ve seen people shown what they are really spending, the majority of them are willing to make the changes to turn the tide.
It’s also important to understand how that person got in debt in the first place. Creating a budget and paying off your debt can only take you so far.
I agree with Kevin. Creating a budget is key. Tracking your spending is an important step toward creating a budget, but I don’t think just knowing where your money is going ultimately will change your life.
Derrik Hubbard, CFP
http://www.yourfinancialpurpose.com/blog
Start thinking outside the box to make more money before you indulge yourself on your next spending spree. It’s not difficult to make a few extra bucks. Virata Gamany
Excellent ideas in both the post and the comments. Before you can figure out how to pay down your debts, you have to figure out where your money actually goes – and looking at the minimum payments and balances on your credit card statement does not answer that question. You need to dive into the statement itself and see what you’re really spending your money on – you’ll be surprised at how much you can cut from your budget when you actually see where it’s going…After that, you need to create a plan, a MANAGEABLE one, and stick to it! Here’s some more helpful information: http://www.solvingdebt.ca/blog/alberta-bankruptcy-–-debt-payoff-calculators-are-tools-you-can-use
We have to move beyond a debt based society and into a more self sustaining model.
It is not about how much you make but rather how much you spend…and save. Yes, now in 2012 is the time to make financial sacrifices.