For some of us, frugal living means more than just being able to spend more on our vacation, or having a little extra to put in the savings account at the end of the month. Financial times are hard at present, and a lot of families have found themselves struggling to make ends meet. It’s an easy trap to fall into; borrow to afford what you need, struggle to pay it back, borrow more to pay that back, struggle once more… it’s a vicious circle that’s very easy to fall into.
In this post I am going to outline a few tips and ideas to bear in mind when dealing with your debts. Unfortunately, when it comes to debt, there are no quick fixes. Getting out of the red is a long hard slog but it’s ultimately worth it in the end.
First Things First – Face Up
The first and most important thing you must do to begin dealing with your debt is to face up to your situation. That means sitting down with your bills, credit card statements, bank statements and final demands and working out exactly how much you owe. If you are in debt, you have probably developed a rather nasty habit of avoiding reading those bills and statements. It can be very frightening when you first get brave enough to face your finances head on, but it’s worth it in the long run. After all, how are you supposed to deal with a problem if you don’t know anything about it? It’s time to stop running!
Look At Your Budget
The next thing you need to do is take a good look at your budget and start tightening the strings a little. There will always be an area you can cut back in, and when you’re up to your eyeballs in debt, every little helps. Work out realistically how much you can afford to throw at your debts each month. Now is the time to start being really honest with yourself about your spending habits. You may think you are sticking to your budget, but if you consistently find yourself in the red at the end of the month, the chances are you are spending elsewhere. A good tip is to start keeping a spending diary – just a small pocket notebook that you can carry around in your purse or pocket, or even just scraps of paper on which you can keep notes throughout the day ready to be transferred into a notebook later on. Be very strict and make sure that you write down every little thing you spend – a coffee here, a sandwich there… it all adds up. When you see just how much you could be saving (and therefore putting towards your debts), you may well find the motivation to stop your frivolous spending!
Prioritize
Ok, so you’ve figured out how much you actually owe, and how much you can afford to pay back. Now it’s time to decide what bills will gain priority. Obviously, the bills you have to prioritize are the ones that would render you homeless or in jail if they aren’t paid. If you have arrears on your mortgage or rent, focus your energies on getting them cleared before your credit cards and store cards. Monies owed on taxes are high-priority debts, also. Utilities are next, depending on where you live. Here in the UK, utility companies are not allowed to cut off your supply if you have small children at home. They are also legally required to accept token payments, rather than full payments, if you are in really dire straits. If you are in the UK, contact the Citizens Advice Bureau (CAB), who can help you negotiate with your utility providers in order to figure out a payment plan that everyone is happy with.
The next on the list is your credit cards and store cards. Have a look at your recent statements and find out what cards have the highest interest rates – these are the ones you want to pay off first. It is always tempting to take out yet another credit card with which to consolidate your existing cards with, but try to resist the temptation. After all, that’s exactly how you ended up in this mess in the first place. If you only have one or two cards, and could genuinely benefit from transferring the balance to a lower interest card, then it may be a good idea to do so. If you decide to do this, cut that card up as soon as the balances have been transferred onto it! If you feel you absolutely must keep it for emergency situations, a good thing to do is to freeze your card. Pop it in a tub full of water in the freezer, and then you won’t be able to just take it out with you wherever you go.
Avoid Minimum Payments
Paying just the minimum required payments on your credit cards and store cards is a sure fire way to waste your money and end up in debt for years. I took out a credit card to pay for my husbands wedding ring – the ring cost £98. Exactly a year later, after paying off the minimum payment each month, my credit card bill was £78. Just £20 paid off of my bill, after a whole year. Now that’s depressing.
If you can manage to pay off just a few pounds or dollars more than the minimum each month, it will drastically reduce your debt over the months. It only takes a quick call to your card company to set up a slightly higher monthly payment.
Seek Outside Help
Wherever you live, you will be able to tap into voluntary services that can help you manage your debt. Look for organisations that will help you plan, budget, and deal with your debts without charging a fee – there are plenty who will. Certain organisations will also help you negotiate with your creditors to agree on payments that you can afford, and can even help to get them to freeze the interest on your payments.