How to Get Out of DebtAmerica is still recovering from the recession which began nearly six years ago. It has been a long and slow process and millions of people continue to suffer from the aftermath of this economic crisis. People not only lost jobs but many also lost their entire savings (including retirement funds) and even their homes.
Today, consumers are still struggling with overwhelming personal debt. Through no fault of their own, many Americans have gotten into serious financial trouble when faced with an unexpected job loss, emergency medical situation, or being underemployed. However, many people who are saddled with outstanding debt are in this position because they consistently made poor financial decisions. Surprisingly, many consumers continue to exhibit bad spending habits and poor money management skills even when faced with crushing debt.
Getting out of debt takes time, determination and patience. It's important to remember that you didn't get into this situation overnight and it will certainly not go away quickly. Becoming debt-free and financially independent are goals worth striving for. But unless you fully commit to changing your spending habits and taking control of your money, it will be nearly impossible for you to improve your personal finances.
A wise man once said: "When you're in a hole, stop digging". This is especially true when it comes to money matters. Here are some smart suggestions which can help you climb out of the financial hole you currently find yourself in. And remember, it will take time. But the rewards are worth it!
- Create a budget. If you already have one, great! If not, make this your #1 priority at the start. Your long-term goal of financial independence will be nearly impossible to achieve without a budget in place.
- Make sure your budget is realistic. Determine your overall monthly net income. Then calculate your monthly expenses. Save every receipt! If you budget $200 for entertainment each month and your restaurant and movie tickets add up to $450, you are doomed to fail. You must take an honest assessment of your financial picture- this means knowing what your income is and what you are actually spending. Then you can decide where to make cuts.
- Stop overspending. Overspending (including impulse shopping) can absolutely destroy a budget! If this describes you, you must be honest and upfront about dealing with this issue. Many people shop in order to compensate for other problems going on in their lives. Until you get your spending issues under control, you cannot realistically expect to get out of debt.
- Include your spouse or partner. It's imperative that everyone in your family works together to get out of debt. Talk with them about the "big" financial picture. Make sure you are all committed to the same goals and agree on the means you are going to use to achieve them. Success only comes when all family members are pulling together and not working against each other.
- Do not take on any new debt. For most people, this means putting away the credit cards and learning to live on a "cash" basis. If you only pay the minimum amount each month on your credit cards and continue to charge new purchases, you will never get out of debt (or at the very least it will be decades!). Also, studies suggest that consumers are much more thoughtful about making a purchase when they use cash. Choose a reasonable amount of cash (that fits within your budget) for a week and make your purchases with that. When it runs out, it runs out. This should make you more aware of what you are spending and encourage you to make smarter choices.
- Increase your income. Consider a part-time job, even if it's just temporary. Look through your home and find items to sell- either online or at a yard sale. Any additional money you can take in each month will allow you to pay off your debt that much quicker.
- Reduce your expenses. Most people have no idea what they actually spend each month. Keeping all of your receipts and going over them each month can be a real eye-opening experience. That cappuccino you get every morning? They probably total about $100 over a month. Rent movies instead of going to the theatre. Cut back on eating out… eating at home is almost always cheaper than going to a restaurant. Instead of buying new books, visit your local library or look online for used books. The savings can be significant. Small changes can bring big results!
- Start an emergency fund. Unplanned financial expenses have a habit of occurring at the worst possible time. Unless you have an emergency fund to deal with these situations you will forced to rely on credit to pay for these expenses. Borrowing money when you are already dealing with debt problems is never a good thing. Start slowing by setting aside a small amount from each paycheck. An automatic deduction to a savings account is an even better idea. Most experts agree that you should have at least $1000 in your emergency fund. Remember this is strictly for emergencies- not a new flat screen TV.
- Take control of your money. Trying to keep up with your neighbors is just a lesson in frustration- not to mention financially reckless. Take control of your financial situation and make smart decisions that enable you to reach your goals. Financial independence is very empowering. Never let money control you.