Strategies to manage personal debt
Beyond your monthly bills that are fixed like your car or housing payments, in all probability you won’t know exactly how much money you spend majority of the time.
In order to control your debt you must begin by deciphering what your spending patterns are and recognizing your unneeded expenditures.
Start by noting down every single cent you spend for a month. This must include every single expense you incur, even your regular cup of coffee that you purchase or any impulsive buying that happens through the day. This will help shed light on exactly how money is spent on a variable or fixed basis. In turn this makes it easier to curb your spending.
Tally all the expenses on the list and equate the sum to what your income is for a month.
What is the amount of money you have left after paying taxes? After spending on your fixed expenses, how much money is left at the end of the month? What is the amount of money you spend on variable expenses?
Also figure out if there’s a way to increase the money you take back home. Provided that you get a huge tax refund on a yearly basis, that means you have an excessive amount withheld from your paycheck. In that case, you could decrease your withholding by making alterations to your W-4 at your work place.
After this is done, you should list out all of your debt obligations and the amount of interest that you are charged for each.
Now is when you are prepared to begin lightening your debt burden.
The fundamentals for reducing debt are easy: reduce how much you spend on a variable basis and the added money should be put towards your debt payments. After you establish the maximum amount you are willing to pay on a monthly basis, first pay for the debt with the highest interest rate; which usually signifies your credit card balance at the time of paying the lowest monthly amount outstanding, on every other revolving bill.
After paying off the debt with the highest interest rate, set aside money to pay the debt with the next highest interest rate. An exception to this is if you own a credit card with a low introductory rate (also known as a teaser rate), that will increase in a fixed amount of time, seek to do away with that balance before the expiration of the low rate.
You may even take into consideration shifting a few of your credit card balances with high interest to a card with an interest rate that’s lower. Remember to read the fine print on any invitation while transferring balances. Every now and then such low interest rate offers are only in effect for a short period of time, following which the rate escalates. Additionally, debt consolidation for one card could reduce your credit score in case your debt to available credit ratio diminishes.
For a number of people, curbing unnecessary spending for a short time span of even a few months can go a long way in fighting debt. However, even this might be insufficient; hence try to curtail your fixed expenses. You can do this by slashing your household bills; refinancing your mortgage to receive minimum interest rates; or in the instance that you have a decent payment history you can ask your credit card company to reduce the interest rate you are being charged.