Spring is in the air, and that means many people are cleaning out their homes and eliminating excess clutter. Unfortunately, houses are not the only areas that become messy; finances do too. As credit balances grow and interest begins to amass, it can be tempting to ignore debt and continue paying only the minimum toward balances.
However, it is important to view money as a tool. Even if you can easily afford the payments on your debt balances, you are still wasting valuable resources that could be used to build your wealth tomorrow. Debt robs you of your ability to establish a strong financial future by limiting your ability to save and invest today. Instead of spending years or even decades worrying over the amount of money you owe, make this spring the time you clean up your debt and make a plan to tackle it once and for all.
Face the Facts: Know How Much Debt You Have
The first step to spring clean your debt is owning up to how much you actually have. Sit down with your spouse or significant other, and write down all of your current account balances and interest rates. Pull out statements for this step, as you want to record the exact balance – not just an estimate. Include all types of consumer debt, including your credit cards, car loans, bank loans, and even loans from friends and family. Many couples are surprised to find that the actual amount of debt they owe and the interest they pay each month is much higher than they previously thought. The truth may be painful to accept, but it is an essential part of moving forward.
Show Yourself the Money
Once you know how much debt you have, take time to write down all of your expenses based on how much you are actually spending on a day to day and month to month basis. Look at all of your bank statements, credit card statements and ATM receipts to determine exactly how much money your household spends between paychecks. If possible, look at you and your spouse’s spending over the course of a few months to get the best idea of your expenditures.
Next, establish a budget that corresponds with your income. People with revolving debt balances often find that they are spending more money than they make. Take a look at areas you can trim spending to make your budget balance. Then, find ways you can cut back even more to create additional cash for paying down debt.
Trimming your expenses does not always have to be painful. In fact, you and your spouse may be able to save thousands of dollars every year simply by taking your lunch to work more often or making coffee at home in the mornings instead of buying a drive-thru latte. While you can still treat yourself occasionally, making small changes to frequent habits can add up to significant long-term savings. Most people can find room to save money somewhere, whether by shopping around for better insurance rates or using coupons when shopping for groceries.
If you have never created a household budget and want help getting started, visit my contact page to request a free budget worksheet.
Begin a Debt Reduction Plan
Finally, set up a debt reduction plan you and your spouse can both agree on. Based on the amount of extra money you have in your monthly budget, begin paying down your accounts one by one, setting target pay-off dates for each debt. We recommend paying off loans from friends and family first to prevent your close relationships from being complicated by money. Then, begin paying down the debts with the highest interest rates, paying as much as possible until your balances have been eliminated. In some cases, high interest rates can be negotiated simply by calling your credit card company and requesting a lower rate. Though not guaranteed, many creditors will offer you a better rate that will help you pay down your balances faster.
Time to Spring into Action
If you are tired of handling your own money according to everyone else’s terms, do not wait another day to take charge of your finances. If you have tried unsuccessfully to pay off debts in the past or simply need help getting started, we invite you to set up a debt reduction consultation with us today. We can’t wait to help you solve your financial problems and begin the path to a stronger financial future.