Are you behind on your payments – constantly a week or two late paying rent, car payments, credit card bills? Once you get behind, it’s hard to catch up. Each time you pay credit card or loan bills late, you get fees and interest payments, creating more and more debt. The good news is that even people who are restricted by an extremely tight budget can make small changes that enable them to pay off their debt and begin saving money for the future.
The best approach for regaining (or gaining) control of your finances will require some thrift and self-control. If you can put a few of the following ideas to use over time, you will soon be able to use your paycheck to pay upcoming bills, rather than making emergency payments to keep the lights on or to prevent the bank from taking back your house.
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A winning strategy for getting ahead of your payments will include the following elements
- Track your spending—collecting information is always the best place to start. How are you spending your money? If you use a checkbook, look back through the entries and see what you’ve purchased. If you use a credit card, even better. All of your expenditures are spelled out for you line by line. If you use cash, start writing down your purchases as you make them.
- Honestly assess your spending habits—use the information you’ve tracked to determine which expenses are necessary and which are not. Only you know the difference, so you’ll have to be ruthlessly honest with yourself. Can you cut down on smoking? Are there other ways you can get around town other than your own car? Are you willing to cut back on cable and just have internet? It’s about reassessing how you live and what’s important to you. You will need to pick and choose the things you are willing to spend your money on in order the lead the type of life you want to live.
- Cut unnecessary expenses—once you’ve determined what you’re willing to give up, start cutting expenses. You can start slowly or eliminate everything at once. The choice is yours.
- Eliminate unsecured debt—unsecured debt is the most expensive debt to hold. The most common type of unsecured debt is credit card debt and many people pay interest rates upward of 14% on their credit cards. If you tend to carry a balance on your card, every dollar will multiply monthly until it’s paid off. Put as much money as you can into paying off unsecured debts like credit card debt to eliminate the extra interest expense each month. (Note: If your credit card debt is overwhelming, or you have multiple cards with balances, you may want to take out a personal loan to consolidate your debt with a lower interest rate. Another option is to transfer your balance(s) to a low-interest credit card, and make monthly payments until it’s paid off.)
- Use cash—cash is a transparent form of payment. When you use it, you can see the loss and feel more pain every time you spend. You can use this psychological fact to help you save money. Instead of paying by credit, convert your money to cash and limit yourself only to the cash you have in your pocket. Having a visual cue to remind you that you are spending will help you hold onto your cash longer.
- Save a little here and there—when the nonprofits hit you up for money at the end of the year, they often say “small amounts add up, so small donations are welcome.” They aren’t wrong about this. One dollar doesn’t sound like much, but one dollar a day is $365 a year. Save the amount you would have put into your daily coffee instead of handing it over to the barista. If you’d rather set an even amount, put $5 to $10 away each week and watch it add up over the months.
- Save around the house—save even more money by living a simpler life. Unplug rarely used appliances and chargers, turn off lights and fans that are not in use, install energy efficient lighting fixtures/heating systems/electronics/etc., use the least expensive television package available (or none, if you can get by without it), shop around for the best telephone/cable/etc. rates (there’s always a new deal), and purchase no-name brands when possible. Over time, you’ll find more and more ways to save.
- Seek lower rates—check in with your financial institution to see if you have the lowest interest rates possible for all of your loan products. You may be able to reduce your loan or mortgage rates or open one of their low-interest credit cards. You can also call the telephone, cable, internet, and other utility companies to make sure you’re getting the best deal. If you’re not getting the best deal, ask them to make a better offer, and don’t be afraid to shop around for something better.
- If you can’t afford to pay it off now, don’t buy it. In today’s world, people often buy now and plan to pay later. When you do that, you place a lot of unnecessary stress on your future self. Be kind to your future self by saving now and buying later. Rather than losing money on interest rates, you’ll earn dividends by saving in an interest-earning account and when you’ve saved enough money, you will still get the thing you want. You can still use your credit card to pay for the item (which will strengthen your credit rating and possibly earn you rewards) as long as you pay the balance before the end of the billing cycle, using the money you saved.
Once you get started, you may find that it is fun to eliminate old spending habits and live a leaner financial life. Living within your means may not be the American dream but it is a lower-stress alternative to living above them.
Still struggling to stay on top of your monthly payments? Contact a VSECU Member Service Consultant at 802/800 371-5162 to discuss options.
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