Manage Your Debt

There are a few simple things you can do to keep your debt under control.

Do you sometimes wonder where all your money goes at the end of the month? Many people do. Besides your fix monthly bills, such as your car, phone and housing payment, the little items you purchase without a thought can really add up.

Are you in the habit of purchasing a cup of coffee in the morning on your way to work? How about picking up a magazine or going out to lunch with co-workers? These $2 to $15 dollar daily purchases can add up throughout a month and leaving you asking where all your money went.

For just one month, write down everything (EVERYTHING!) that you spend money one, including the $1 pack of gum and the $5 mocha. At the end of the month, add it all up and categorize your expenses into sections such as entertainment, dining out, gas, etc. This exercise will show you just where all your money is going so you can more easily decide where you need to curb your spending. You will likely be surprised.

In addition, writing down all of your expenses will likely make your realize just how much you are spending and with this top of mind awareness, you will probably spend less.

Many banks also offer handy programs that do this for you on their website. Your expenses will be automatically categorized with each check card purchase you make. The expenses are then shown in easy to read pie charts and graphs. Check with your bank to see if this program is available to you.

Take your monthly income after taxes and subtract your fixed costs. Then compare the sum of your “extra expenses” list to your monthly income. Is that $5 daily mocha worth the percentage of your paycheck spent? Decide where you can cut your extra spending and put more money toward debt that is racking up interest.

Then, make a list of all your debt obligations in order of highest interest to lowest interest. Continue to maintain your minimal monthly payments on all of your credit cards but pay more money towards the highest interest balance. Decide how much of your extra spending you can cut down on to put towards that high interest card. After that card is paid off, begin doing the same with the next credit card on your list, and continue on until all your credit card debt is paid off.

There is only one exception. If you have a credit card with a low interest rate introductory rate that will expire and then charge you a higher rate, put this one at the top of your credit card list. This should be your priority to pay off and then move on to the high interest cards.

Many credit cards offer low interest introductory rates to get new customers. Some will even offer no interest for a period of six to 18 months if you transfer a balance. These can be great but there are a few things you need to watch out for. Find out what the interest rate will be after your introductory rate is up – these can skyrocket. Also, there is typically a balance transfer fee. Find out how much this is and if it is worth it. In addition, be careful not to sign up for too many credit cards in a short period of time. This will have a negative effect on your credit rating.

For many people, cutting back on extra expenses for just a few months can really go a long way in reducing their overall debt. It may be hard to change your habits and first, but new habits will develop and you will feel much better about your financial situation.

If just curbing your discretionary spending is not enough, take a closer look at your fixed expenses. There may be ways to lower your household bills. Keep in mind your long term financial goals and what it will take to get there. It will take discipline, but before you know it, you will be debt and stress free!