It’s no secret that setting a budget and sticking to it can save you money. The trick is doing both and doing it well. That’s what we’re going to explore in our new series – Building a Better Budget. It’s all about how you can save yourself some money with a little budget planning and taking advantage of some useful tried and true tips. For more tips, check out Part 1, Part 2, and Part 3.
“I owe, I owe. So it’s off to work I go…”
Debt might not be something to sing about, but it’s a common dread for almost everyone, including new college grads. The problem is painful and frustrating when it seems like there’s more money leaving your purse than you have entering it.
However, you can’t afford to sit and despair or things will get worse. There are ways to get out of debt and move beyond it. The process isn’t easy, nor is it convenient. It’s also a lot of work, BUT the whole process can bring long-term rewards and teach life-long lessons. Here are the best six broad and basic ways for you to get out from under your debt burden to start building savings and a better credit score.
1) Set Up and Follow a Monthly Budget
We’ve already talked about the importance of setting up and sticking to a monthly budget. When it comes to reducing debt, knowing how much you spend every month to cover your expenses (and debts) — and sticking to that budget — keeps you in control of your debt situation. It also helps prevent you from needlessly racking up additional debt.
2) Set Money Aside for Tomorrow
This is one of the hardest things for most Americans to do. While there are plenty of articles spouting “Experts recommend that your emergency fund should contain up to six months’ worth of living expenses…” — not a one says how you’re supposed to accomplish that, especially when you’re up to your eyeballs in bills.
The simple truth is to sock away something every month, no matter how small. Get started buy cutting back on dining out, trips to coffee shops, or movies for a while and put that money into a an interest-bearing savings account. Then, keep stashing away money into it. Having savings ready prepares you for unexpected expenses and provides seed money for something you may want in the future.
3) Learn to Save on Everything
There’s nothing wrong with being frugal. Being able to reduce your costs on food, energy, clothing, entertainment, transportation, and data (yes, cell phone expenses can be controlled) saves you money.
The trick is to prioritize your spending on the things you really need to stay healthy and active while shunning the luxuries you can’t afford (and the chances are good many of them will be out of style or obsolete in a year). Also learn basic maintenance for your car, clothes, and other such items. Making your stuff last longer means you won’t need to spend money to replace them.
4) Pay Off Your Credit Cards ASAP
Remember, credit cards are loans of money — and loaned money COSTS you money. An average American household has $7,241 in credit card debt. Interest rates (annual percentage rate or APR) range from an average of 15% to as high as 22.73 for bad credit.
When you only make the minimum monthly payment, it’s that interest rate that will cost you more. A credit card debt of $500 with 20% interest adds another $100 to your debt. Late and other penalty fees gouge even deeper.
If you can’t pay off the whole balance at once, pay more than the minimum balance every month until the balance is paid off. Once you’ve paid it off, keep a zero balance on your credit cards — pay them off each month. Not only does this help you spend within your budget, it will eventually improve your credit rating and will win you the best interest rates in the future.
5) Keep Up with Those Student Loan Payments
If you’re having financial problems that make it hard to meet your payments, the government student loan programs do include provisions allowing you to delay or temporarily suspend payments. These are called deferment and forbearance.
- Deferment is a period during which repayment of the principal and interest of your loan is temporarily delayed.
- Forbearance allows you to stop making payments or reduce your monthly payment for up to 12 months, although interest will continue to accrue.
Don’t be afraid to contact your loan student loan provider to find a way to ease the burden for your situation.
6) Get More Money
Sounds so simple it’s ridiculous, right? But the fact is you need more money, and the most certain way of getting it is take the initiative and and go find it.
- Ask for a raise in your current job.
- Start up a freelance or craft product gig on the side to expand your earning potential. You may even enjoy it and it could lead to something even bigger.
- Don’t be afraid to look for a better paying job.
When opportunity knocks — however quietly — grab it by the throat!
One more thing: One of the biggest pains you can inflict on yourself have is letting your debts be turned over to a collection agency. These guys are not in the business to help you with your debt problems — their job is to get the money. When a payment problem comes up, always first talk to the companies you owe money to (creditors) and work out a solution with them first. This will show them you are acting in good faith to meet your obligation to them, and they may also be willing to work out terms you can afford.
Up Next in Part 5: Preparing for Retirement.