by DEBBIE PACHECO
When it comes to finances, there are very few households these days that don’t carry their share of debt. From student loans to mortgages to credit card balances, most people owe at least some money and are trying to balance payments in a responsible manner. Not all debt is bad. Borrowing money for a home mortgage or to pay for education and better your job prospects makes a great deal of sense. However, other debt, like revolving credit card debt, can affect your financial future.
With credit cards, taking a responsible approach to spending is crucial. Many people use their credit cards to make everyday purchases in order to earn points or rewards. While accumulating points or rewards can provide tangible benefits in exchange for card swipes, it’s important not to neglect the interest that can accumulate on statements. Spending without budget constraints may lead to bills that you can’t afford to pay because of rapidly accumulating interest each month. Use your card wisely. If you can afford to pay off the balance, do so. Then your rewards will really be earned rather than paid for by your interest charges.
If you’ve already dug yourself into a bit of debt and are trying to get out, these steps may help you to demolish your debt dilemma:
• Get your spending in order. Write down everything you spend for a month and see where your money is actually going. Are you spending on daily extra treats like vending machine snacks or expensive lattes? Do you have a gym membership you rarely use? Figure out which expenses are needs and which are just wants, then formulate a budgeting system that takes these needs/wants into consideration.
• Pay off your highest debts first. Highest doesn’t necessarily mean the largest dollar amount. When analyzing your debts plan to pay off the debt with the highest interest rates first. Once you’ve paid that one off put the newly freed-up funds toward the debt with the next highest interest rate. Or consider a balance transfer from your other high interest cards to a lower-rate credit card. Using these strategies can create a snowball effect and help your sense of financial security to grow while your debts shrink.
• Pay sensibly. Every financial situation differs, but these two guidelines are probably true for most people. Don’t pour every cent of your available cash into your pay-off plan. And don’t borrow from your 401(k) or retirement plan to pay off your debts without carefully considering the impact it could make on your retirement. It’s important to have an emergency fund easily accessible now and to have a plan for your financial future (and you can use monthly transfers from savings to checking to build your fund).
• Refinance. Look for opportunities to refinance your loans. Especially with auto loans – the rates change often and you may be able to secure a new and lower APR by refinancing. You could save hundreds, or even thousands, over the life of the loan and could put that money toward paying down other debts.
No matter how big your debt seems, by taking simple steps, you could improve your overall quality of life. With determination and a financial plan you can get yourself and your family on the right financial track for a fiscally responsible future.
