Failure to plan is the number one reason people get into more debt than they can handle, and it starts at an early age. From the time we’re in high school, we’re told to go to college and get a good education. That college education is expensive and many people fail to plan and save for it. Everyone thinks student loans will cover the cost of the education, and getting a good job will pay back the student loans. Unfortunately, that good job may only pay $10 to $15 an hour starting out, and it may take several promotions and job switches to attain a really good hourly wage or yearly salary.
Here’s How the Debt Piles Up
Upon graduation, it’s time to grow up, get a place to live and a better car. The college clunker won’t make it to and from work every day without costing a fortune in repair bills. This means that many recent graduates by new cars straight out of college. It’s another debt and another monthly payment.
Along with the new car, new job and new place to live, recent grads can expect new bills. Those bills include rent, electricity, gas, car insurance, Internet and phone services. Many people also go on to purchase extra items such as cable TV, gym memberships and hobby magazines.
At this point, the money gets tight. Many people start maxing out their credit cards to buy food, gas, vacations and other essentials they feel they need on a daily basis.
By the time it’s all said and done, you’re deep in debt with seemingly no way out, and it was all due to failure to plan, save and budget for the future. However, there is a way out of debt. In fact, there are several ways out of debt.
Everyone needs a budget. A budget is essential for understanding all your personal expenses and income. However, most people don’t do complete budgets, or if they do, they don’t follow them. A complete budget accounts for everything. This includes rent or mortgage payments, electricity, phone services, TV services, subscription services, retirement plans, savings goals, food, gas, car insurance and anything else that is an expense. It also involves calculating your monthly income. Income includes salaries, bonuses, dividends, child support and alimony as well as any other sources of monthly income.
Once you’ve calculated your income and expenses, subtract your expenses from your income. Hopefully, the number is positive. If the number is not positive, you need to reduce and cancel unnecessary expenses until the result is a positive number.
This could mean cancelling TV and subscription services, reducing your food budget or reducing your fast food expenses. It could also mean cutting back on your gas budget and planning your shopping trips and car excursions more carefully. Combining trips is a good way to cut down on gas expenses.
Reduce Expenses In Order To Pay Off Your Debt More Effectively
Paying down debts quickly and getting out of debt involves paying more than just the minimum payments, and it involves living well below your means. In order to accomplish this feat, it’s important to cut out most, if not all, of your non-essential expenses. Non-essential expenses include anything that isn’t necessary to live. This means cutting out all subscription services, cancelling cable or satellite TV services, limiting shopping excursions and cutting out most, if not all, of your fast food expenses.
If you have old bills and some money saved, it might be worth your time and effort to try to settle some of the debt. Debt settlement involves calling your old creditors and negotiating settlements for less than you owe. Debt collection agencies are perfectly willing to settle old debts for lump sum payments. This pays off the account and saves you money. Though, you have to have all the bill money on hand when you call the collection agencies. Debt settlement is only successful if you can make a one-time payment.
Credit cards and student loans can be consolidated into single payments and fixed interest rates. The easiest way to consolidate credit cards is with a credit card consolidation loan. There are companies that provide this service, and some banks are willing to lend “unsecured loans” for this purpose. Getting a credit card consolidation loan, lowers the interest rate, pays off the current credit card accounts and lowers the monthly payment. Though, it’s important to make more than the monthly payment on the consolidation loan in order to pay it off faster. The loan doesn’t do any good if you’re still willing to spend 10 years paying it off. It’s also important to cancel the credit cards once the balances are paid off. The worst thing you can do is start using your credit cards again.
Multiple student loans can be consolidated into one loan with a fixed interest rate. The interest rate could be the same or lower than your current interest rates. This type of loan makes multiple student loans easier to manage and pay off since it’s only one payment a month.
Another technique for paying down debt quickly is “debt snowballing.” Debt snowballing refers to making successively larger and larger debt payments until all your debt is completely paid off. It starts by making the minimum payments on all your debts except one. On that one debt, you pay more than the minimum payment until that debt is paid off. Once that debt is paid off, you move the payment into the next debt account. As you successfully pay off each debt, your payment amounts get larger. This is the snowball effect, and you continue this payment practice until all of your debt accounts are paid off.