You cannot spend the rest of your life going in and out of debt as you will never be financially free. You need to start learning about financial management and keeping track of your spending. Whats my credit score is one question you should never have to ask as you should know the answer.
These simple debt management tips will help you keep the balance in your financial life.
First off, stay away from things that cause you to build up debt. Try working with cash only for a while. It will be difficult but when you have to part with actual dollars to pay for something you may decide that you don’t actually need it. This will cut your impulse spending and you wont need help with credit card debt anymore.
If you can’t live life without a credit card then consider pre approved credit cards. These are secured cards that only allow you to spend money that is available on that card and once that money is gone you won’t be able to overspend on money you don’t have. But be warned, these are expensive so it pays to shop around for the ones offering the best deal. Check out the annual fee and whether there is a fee charged every time you use the card.
Second, build a budget to track your spending and saving habits. Now I know that a budget can be time consuming but websites like Mint.com take all the work out of creating a budget. In fact all you have to do is link up your accounts and input your debts once and Mint will take care of the rest. Knowing what income you have coming in and what expenses you have going out may help you avoid making impulse purchases.
Third and finally, put a plan in place to pay off your debt. To do this you’ll need to set up a list of all of your creditors, the type of debt i.e. a credit card or loan account, the interest rate and the amount outstanding. You need to make sure that all minimum payments are maintained and then focus on one debt and use all of your left over cash to pay that one off. You can either chose the debt with the highest interest rate to save money in the longer term but most people will chose the one with the lowest balance so you get a sense of achievement when you pay it off.
You will amaze yourself by coming up with new ways to generate cash to get rid of these debts. Just make sure there are no penalties applied for making extra payments – some loan accounts and mortgages cannot be overpaid but you should be fine with credit cards. Once the first debt is paid off take all the cash you were putting toward debt one and put it all towards the next debt you want to clear until it too is paid off. Your credit score will be increasing as you are paying down your debt while maintaining payments on everything.
You should also set some money aside as emergency savings. If you can aim to save at least three months worth of minimum debt payments this will give you a financial cushion should you lose your job or something else stop you from earning. When all your debts are cleared you can start tackling your mortgage and within a relatively short space of time you could be debt free. Some people do it in five years while others take 15 years. It doesn’t matter how long it takes as long as you have learnt how to manage your finances properly. Your retirement and the financial security of your family will be much healthier.
In the end these simple debt management tips can help you stay clear from the red and all the hassles associated with having low credit scores and lack of financial security.