One of the most challenging and overwhelming life struggles that can occur is when you need to get your finances straight. Regardless of your current position in life, learning how to manage debt and plan for a better financial future is possible – it just takes time, patience, and will power to make it stick.
Step One – Assess the Situation
Gather copies of bills for all the debt you have accumulated. This includes credit cards, lines of credit, mortgages, loans, and any other outstanding bills. Add all of these bills up so that we have an idea of how much your total debt is. The only way to move forward is to face your problems head on; it’s almost a guarantee that you will be astounded when you realize the actual amount of debt you have accumulated.
Step Two – Create a Budget
Create a budget that takes into consideration all your day-to-day expenses as well as to help you plan for the future. Note what your take home pay is and deduct all your monthly expenses from this total. Your mortgage or rent, utility bills, and insurance are considered fixed monthly expenses. Variable monthly expenses include transportation costs, gasoline, groceries, and phone bills. We will find out in this step how much of a monthly disposable income is present.
Step Three – Make a Plan
Once you have identified what your disposable income is, we can create a strategy to help bring debt down to a manageable level. Separate all your outstanding debt into categories of high interest rate debt and all others so we can identify what should be reduced first to decrease interest payments. An example would be to eliminate credit card debt first as annual interest fees often are around 18% than a line of credit with an interest rate of 5%. Strategic debt payment can help you utilize your hard earned cash that would otherwise be spent on interest charges.
Step Four – Make an Arrangement with Creditors
If you have various creditors that are hounding you for unpaid bills, do not avoid them. Speak to their customer service representatives, or higher if need be, so come to some sort of repayment plan that isn’t going to negatively affect your credit rating. Negative feedback on your credit history will affect your score and can hinder you from being able to buy a house, get a car loan, or other miscellaneous credit loans in the future.
Take the first steps towards getting out of debt by taking an overall look at your financial picture. Only you can get yourself on the path towards financial freedom