For most people the concept of budgeting our expenses seems very daunting and, let’s face it, having a budget is not particularly fun. However, no matter what financial position you are in, understanding your expenditures and income is absolutely vital to financial health. Consider, for example, the average person who drives to work. What daily expenses do they incur along the way? If they’re like many people, they will purchase a coffee along the way to work. When lunch-time comes they will go to the local coffee shop or restaurant and purchase one. And, I might add, let’s not forget the gas to get to and from the workplace. Assuming the coffee is $1.20, the lunch is $10, and the workplace is about 10 miles away @ $2.20 for one gallon of gas, the estimated expenses just to get to work for this person are $268 per month or $3,216 per year!
If you’re in a similar situation, you might not have thought of your daily work routine as costing you over $3,000 per year. After all you just feel like you’re forking over a few dollars every day. As you can see though, your daily expenses can add up in the long run. Now, think about your debt situation – could you use an extra $200 a month toward your credit cards or mortgage payment? If so then here’s my advice: sit down and list all of your expenses (including your credit card and mortgage payments) and then list all your income from your pay-stubs. Make a very simple personal “income statement”. Then ponder over these two questions after you do so:
Question #1:
Do I need that, or do I want that?
In our example above, this person doesn’t need to have a lunch out every day, but he, like I, certainly wants that! Take a look at your income and expenses. Is there something like the lunch that you can cut out? Are you buying a coffee every day? Maybe you’re buying name brand clothes instead of cheaper ones? Look for ways to distinguish between needs and wants.
Question #2:
How can I get my income to be greater than my expenses?
The key to running a successful business is also the key to running a successful personal life. Make your income greater than your expenses. Have a high interest rate loan? Switch it to a company who’ll give you a lower rate. Want a nice meal out? Maybe you could skip that and use the money to pay down your highest interest rate credit card.
In conclusion, if you’re in debt, take a look at your financial situation. Make a “snapshot” of every month and see where you can reduce your expenses. Throughout the month make sure you try your best to stick to your budgeted expenses. Then put any “profits” towards paying off your debt. With enough determination to pay off your debts, and smart money management, you can not only one day become debt free, but also have a nice sum of assets as well!
Using a Budget to Get Out of Debt
5 Surefire Ways To Eliminate Credit Card Debt
Do you have enormous credit card debt? You are certainly not alone. According to research, the average family in the United States has $7000 in credit card debt and pays about $1000 in interest each year! Throw in a late payment or two, or an over-the-limit charge, and that number skyrockets. Imagine what you could do with that $1000 if it weren’t being spent on interest.
Let’s imagine for a moment that you have $5000 debt on one credit card that is charging you 17.5% APR. Let’s also imagine that you pay only the minimum due of $25/month on this card. Guess what? You will never pay it off! The interest alone on this card is $73/month!
That means that each month you get further and further into debt. By the time you have been paying on this $5000 for 10 years, assuming you have not used the card during this entire period of time, you will owe $20,385! That’s over $15,000 in interest. If you triple your payment to $75, it will take you over 20 years.
So, what do you do? How do you get out of debt and use that money towards other necessities, savings, and investments? Here are a few simple methods that you can use without having to go to an expensive financial counselor.
Tip #1: Cut Up Your Cards
The very best way to reduce your credit card debt is to STOP using your credit cards! There is no need to have more than one card, so pick the one with the lowest interest rate and cut up the rest. The one you keep should be deemed an ‘emergency card.” These are true emergencies, not mere inconveniences. For instance, buying a new TV would not be an emergency, but renting a car in order to get to the bedside of a dying loved one would be. You can carry your emergency card with you, but don’t make it too easy to use. One good suggestion is to cover the card tape and paper and write on it: For Emergencies Only.
Tip #2: Move Your Debt
If you have more than one credit card payment, you may want to consider moving debt from a card with a higher APR to one with a lower APR. This will lower the amount of money you are spending towards the interest and get you out of debt faster.
Tip #3: Use the Snowball Principle
List all of your credit card debts, and the amount you are paying each month. Pay off the lowest amount first. Then use that money to start paying off the second lowest amount. And then the next and the next. Let’s look at an example.
If you have a $7000, $5000, and $2000 card with payments of $150, $125, and $100, you will finish paying off the $2000 card first. Once it is paid off, you take that $100 and put it towards the $5000 credit card. That means you are now paying $225/month. You have increased your payments which will pay off that credit card sooner and will have you paying a lot less in interest. Once that is paid off, you apply the $225 to the $7000 card, making your monthly payment $375. This will greatly accelerate the payment of this card, reducing your interest payments even further. When everything is paid off, you now have $375/month extra to put towards savings or investments!
Tip #4: Prioritize Your Debt Repayment
One of the best ways to pay off your debts is to get rid of the highest interest payment first. Looking back at the snowball example, you took the lowest and paid it first. If, however, the $2000 card had the lowest interest rate, you would want to pay off the card with the highest rate first. This will save you much more in interest payments.
If the math gets too hard here, don’t despair. There are many places on the Internet where you can find good debt reduction calculators. It is then just a matter of punching in your numbers and reading the report.
Tip #5: Consider Consolidation
If you own a home, you may want to consider consolidating your debt using a home equity loan. Since a home loan is a secured loan (they can take away your house if you don’t pay) you have a much lower interest rate than you do on your credit cards. Paying a lower interest rate is always a good thing! Not only that, but the interest you pay on your home loan is tax deductible. This is NOT true for credit cards.
By following these tips, anyone can take control of and completely eliminate credit card debt.
The Pro’s and Con’s of Debt Consolidation Loans
You are swimming in debt. You have 4 credit cards maxed out, a car loan, a consumer loan, and a house payment. Simply making the minimum payments is causing your distress and certainly not getting you out of debt. What should you do?
Some people feel that debt consolidation loans are the best option. A debt consolidation loans is one loan which pays off many other loans or lines of credit.
I’m sure you’ve seen the advertisements of smiling people who have chosen to take a consolidation loan. They seem to have had the weight of the world lifted off their shoulders. But are debt consolidation loans a good deal? Let’s explore the pros and cons of this type of debt solution.
Pros
1. One payment versus many payments: The average citizen of the USA pays 11 different creditors every month. Making one single payment is much easier than figuring out who should get paid how much and when. This makes managing your finances much easier.
2. Reduced interest rates: Since the most common type of debt consolidation loan is the home equity loan, also called a second mortgage, the interest rates will be lower than most consumer debt interest rates. Your mortgage is a secured debt. This means that they have something they can take from you if you do not make your payment. Credit cards are unsecured loans. They have nothing except your word and your history. Since this is the case, unsecured loans typically have higher interest rates.
3. Lower monthly payments: Since the interest rate is lower and because you have one payment vs many, the amount you have to pay per month is typically decreased significantly.
4. Only one creditor: With a consolidated loan, you only have one creditor to deal with. If there are any problems or issues, you will only have to make one call instead of several. Once again, this simply makes controlling your finances much easier.
5. Tax Breaks: Interest paid to a credit card is money down the drain. Interest paid to a mortgage can be used as a tax write-off.
Sounds great, doesn’t it? Before you run out and get a loan, let’s look at the other side of the picture – the cons.
Cons
1. Easy to get into further debt: With an easier load to bear and more money left over at the end of the month, it might be easy to start using your credit cards again or continuing spending habits that got you into such credit card debt in the first place.
2. Longer time to pay off: Most mortgages are the 10 to 30 year variety. This means that rather than spend a couple of years getting out of credit card debt, you will be spending the length of your mortgage getting out of debt.
3. Spend more over the long haul: Even though the interest rate is less, if you take the loan out over a 30 year period, you may end up spending more than you would have if you had kept each individual loan.
4. You can lose everything: Consolidation loans are secured loans. If you didn’t pay an unsecured credit card loan, it would give you a bad rating but your home would still be secure. If you do not pay a secured loan, they will take away whatever secured the loan. In most cases, this is your home.
As you can see, consolidated loans are not for everyone. Before you make a decision, you must realistically look at the pros and cons to determine if this is the right decision for you.
Wesley Atkins is the owner of http://www.credit-cards-advisor.com- which aims to get you fitted with the best credit cards to suit your situation. With numerous credit card articles and easy online credit card applications you will never choose the wrong credit card again.
Article Source: http://EzineArticles.com/?expert=Wesley_Atkins