Trapped By Debt
It is far too easy to wind up trapped under a mountain of debt. Most people never see it coming though. They just keep on adding on financial obligations until the weight of the debt is simply too much to handle. Here are some signs that you may be headed in that direction.
Your Paycheck Is Gone The Day You Get It
The thing that most people trapped by debt have in common is that they are living paycheck to paycheck. They are so backed up on bills that as soon as they get their paycheck, they use every penny of it to get caught up. This is a sure sign that you are living outside of your means or that you are carrying more debt than you can handle.
Regular Monthly Expenses Are Paid On Credit Cards
Credit cards should be used for emergencies or to make occasional large purchases. They should never be used to pay for your day to day life, unless you can afford to pay them off every month. If you are using your credit cards every month for common purchases and not paying them off completely, this is a problem that will catch up with you in time.
You Get A Loan To Pay A Loan
This is something that is very common with cash advances or payday loans, which is why those loans should be used with caution. You might take out a loan for 500 dollars that is due in a week. At the end of the week, you can not afford to pay it off, so you get a new loan. It is an all too common problem. What happens is that you will constantly be paying loan fees without every getting ahead on the loan principal.
Credit Cards Are Used To Get Cash
This is one of the worst things that you can do with a credit card. If you take it to the ATM to get cash, you will usually pay a fee and then the interest rate on the cash will default to the highest level. If you have no other means to get cash, that is one of the reddest of red flags.
You Are Making Late Payments
When you are being charged late payments, it means that your take home pay is no longer able to meet your minimum monthly obligations.When this happens, things are only going to get worse, especially with the added expense of late fees and overage charges.
Getting Back On Track
So, are you buried in debt? There is hope, but it will take some work on your part and likely a few sacrifices. Here is what you need to do in order to get your finances back under control.
Set A Budget
First and foremost, you need to set a budget so that you can see exactly were your money is going. This is how most people get in trouble with debt, because if you do not know where your money s going, you are likely to waste it.
A budget does not have to be complicated. Simply write out a list of your monthly expenses, including allotments for things like food, entertainment and fuel. Once you have your expenses written out, you can compare the total cost to your take home pay and make cuts to balance your budget.
Some of the cuts might be easy like simply cutting out some restaurant dinners or switching from cable to a streaming entertainment service. Other cuts might be harder like trading in your car or even moving to a more affordable home. No matter what, you have to get that budget balanced at all costs.
Pay Off Credit Card Debt
Once you have a balanced budget, you can turn your attention to paying down those credit cards. You simply can not afford to carry debt that is likely costing you 20 percent APR or more.
To get rid of your debt, you need a debt reduction plan. The two most popular are the Debt Snowball method and the Debt Avalanche method.
With the Debt Snowball method, you organize your cards in order of balance. Start with the lowest balance card and pay as much as you can on it while paying the minimum on the rest. The idea with this method is that you will be able to completely pay off a card quickly and then you will be motivated to continue. It is much more satisfying to pay off a 500 dollar card in a month or two versus paying down a card with 4000 dollars over the course of a year. Once you pay off your first card, celebrate and then move on to the next lowest balance card.
Now, let’s look at the Debt Avalanche method. With this method, you organize your card by interest rate. Take the card with the highest rate and pay the maximum that you can on that card, while paying the minimum on the rest. The idea here is that you maximize your money by paying down the highest interest debt first. If you are a more logical person, this method will likely appeal to you.