Spending your money seems like such a great way to have fun, especially when you have the credit to take care of the essentials you need and the gadgets you want. However, you can pack on those debts in a short time, putting yourself in financial trouble. That’s not a happy life for people who suddenly have to spend all their time paying off collectors or worrying about bills week to week. Debt prevention provides financial security and freedom.
Budget planning sounds like hard work to folks with busy lifestyles, but it’s easier than you might think. Write down a budget plan either by hand or by using computer software that provides budget templates. You can even check out online budgeting websites that track your spending. To begin a budget plan, write down how much take-home pay you earn each month. Then subtract regular bills such as rent or mortgage, car payments, electricity, phone service, Internet service, insurance, etc. Then subtract what you might reasonably spend on other essential items such as groceries and gas. When you have a plan, you can see where your money goes and what to cut back on. Be sure to stick to your plan every month. Take the extra money you don’t need for trivial playthings and move it into a savings account that can pay off home improvements or auto repairs.
Automate your expenses and your savings. Use automatic withdrawals as much as possible to pay bills. You can set these up for regular monthly bills such as your rent or mortgage, car payment, cell phone service, electricity, Internet service, heat, etc.. This forces you to pay your bills on time and avoids extra penalties that add to your debt load. Paying your bills in full prevents debt increases that can build up before you know it. Use the same automated technique to have withdrawals from your paycheck put into a 401 (k) at work or into your own financial investment portfolio. Invest any money in diversified accounts, such as mutual funds, to grow money steadily and securely.
Don’t apply for too much credit too quickly. You need to build up some credit for a good credit rating, but lenders become cautious about people who might put themselves deeply in debt with extra credit cards, personal loans or home equity loans. Avoid getting close to your credit card limit. Use only 30 percent or less of your available credit to avoid building up debt. Keep cash on hand to spend. Using your debit or credit cards becomes an easy way to spend more than you need or can afford. Contact your creditors once in a while to negotiate lower interest rates, which can help you pay off debts faster.
Pay Off the Small Stuff
If you find your debts are building up, pay the minimum amount you owe on all your debts except for the smallest one, using all the money you can to pay that debt off. Then work your way down to pay off your smallest debts. This helps motivate you to pay off all your debt. If you own a home with a variable rate mortgage, look into a fixed rate on a 30-year term. Although you can get lower interests rates on a 15-year mortgage, you will have more cash left over for emergencies on a longer term. You can also use some of that extra money to remove any immediate smaller debts and increase your financial security.
If you happen to find yourself over your head in debt and need help with debt management, check with the National Foundation for Credit Counseling, or NFCC. It can advise you on your financial situation and even help you with a debt management plan that waives credit card balances and reduces interest rates to help you pay off debt.
Jerry Shaw writes for Spice Marketing and LinkBlaze Marketing. His articles have appeared in Gannett and American Media Inc. publications. He is the author of "The Complete Guide to Trust and Estate Management" from Atlantic Publishing.