Many Americans live under the specter of overwhelming debt. According to the Federal Reserve Bank, consumer credit reporting agencies added bankruptcy notations to about 255,000 consumers’ records in the first quarter of 2015. Currently, Americans are nearly $12 trillion in debt. Credit card debt represents almost $900 billion of that, and student loans set American consumers back more than $1 trillion. Most of the remaining debt is due to home mortgages.
If you are struggling to get out of debt, you’re certainly not alone. The following advice can help those who badly want to get out of debt. Even though you may not be able to apply all of these tips, the important takeaway is to change your spending habits and improve your saving habits by committing to your goals, exercising restraint and paying yourself first.
Face it. It’s your spending that got you into this situation. You’re not going to get out of it until you reform the way you spend. You need to take a good, hard look at what you’re spending and where. Be honest and realistic, and determine how and where you can cut corners. Sometimes, it’s best to simply reduce your outgoing, and in other situations, you will need to completely eliminate some expenses.
Some non-essentials that can be cut or curbed:
• Cable TV – With the Internet, Netflix, Hulu, Amazon Fire and a plethora of less expensive non-cable offerings, many consumers are cutting ties to high cable TV expenses.
• Dining Out – It’s remarkably less expensive to prepare your food at home. If you cannot completely eliminate this costly activity, at least consider cutting down on the number of times you dine out.
• Gym memberships – A healthy lifestyle is important, but you don’t need a gym to exercise and stay fit. Take a walk, ride a bike, jump rope, or follow along with an online exercise routine. You can purchase used resistance bands and weights to add strength training to your regime.
• Movies – A trip to the movie theater is a pricey outing, especially with refreshments. But do you really need to see that new movie as soon as it hits the theater? Wait for it to come out on DVD on Redbox. Meanwhile, watch some oldies but goodies on Netflix or Hulu.
• Vacations – Be realistic. You may need to cut these out for a while until you get your debt down to a reasonable level.
No Outrageous Loans
What’s worse than living paycheck to paycheck? Living payday loan to payday loan. Their storefronts are everywhere and the ads are ubiquitous. The number of payday loan facilities actually outnumbers Starbucks locations. But with excessive fees, exorbitant annual percentage rates and rollover costs, payday loans, also known as cash advance loans, are an awful drain on the consumer. They perpetuate a vicious cycle that is increasingly harder to end and prohibit any attempts to save and get out of debt.
Also beware of newer companies that call their financial service offerings installment loans and try to compare themselves much more favorably to payday loans. Though the terms are a wee bit better, these loans are still an extremely bad idea.
Careful College Spending
Resist the pressure to apply for the maximum in student loans. Apply for financial aid, grants and scholarships first. Only borrow what you need. Purchase used textbooks. Consider working to help pay for school and be realistic about what school you can actually afford to attend.
Credit Card Restraint
In your situation, more than one credit card is a bad idea. Review credit card offers with 0% interest promotions for balance transfers. Consolidate your credit cards with the best offer available and concentrate on paying down that debt.
A good tip on spending is to use cash, rather than credit. Credit card spending encourages you to purchase more than you would if you used cash and increases your risk of engaging in impulse buying.
Explore all Available Options
Do you receive an income tax refund? Instead of letting the IRS hold your money all year, adjust the exemptions on your W-4 to start receiving that extra money on every paycheck. Add that extra income to your normal credit card payments every month. This will chip away at your balance and reduce the interest you would be paying otherwise.
Do you have pricey car payments and high gas expenses? Consider a vehicle downgrade to an economical auto.
Do you have a structured settlement? Wondering, “Should I sell my structured settlements?” Access to a lump sum can help you pay down your highest interest debt.
Are you single? Consider living with a roommate to share on expenses.
Take a part-time side job.
Save vs. Borrow
By using the previous tips and advice, you should be able to start saving money. Top financial advisors promote the idea of “paying yourself first” for sound financial health. This means put money in your savings account every time you get paid before you spend a dime on anything else. Your focus must change from borrowing and spending to saving and paying as you go. Once you have this mindset down, you will be on your way to getting out of debt.