How To Reduce Debt and Learn To Save For a Rainy Day

Americans individually and collectively face massive debt today. When one has a lot of debt and lives from pay check to pay check, the loss of a job can be devastating.

A person’s income is so fragile. It can disappear because an employer goes out of business or due to your own health problems that prevent you from being able to work.

And debt, such as high credit card debt with high interest rates only contributes to more debt down the road.

Credit Card Debt

If you have thousands of dollars in credit card debt with an interest rate in the teens and you only make the minimum payment it will take you in the neighborhood of 10 to 20 years to pay off that debt. And, that is if you don’t continue to add to the debt.

Create a Budget

To get an honest handle on your debt you have to be willing to budget the money you have coming in and, in most cases, be willing to sacrifice some.

You need to understand the need to SAVE money for an emergency, or bad times. Lets face it LIFE happens and change is inevitable. The car will need maintenance and someone in the family will get sick. The price of consumer items will go up.

So, you must save money in order to be able to pay for these things that will eventually happen.

Make a committment...

First, commit to stop charging and start paying cash for everything you do. It is so much easier to understand exactly what you can afford to buy if you are paying for it right then out of available fund and not having to face the music until 4 to 6 weeks later.

Everyone needs to establish some credit so that they can have sufficiently good credit scores when they want to buy a new car or get a mortgage for a new home, but if you are not managing that credit well, then you need to get out of debt, learn to manage your income and then attack the use of credit later in order to establish a good credit rating.

Can't afford to save?

A lot of people say they can’t afford to save because it takes everything they make just to get by. However, if you take a look at what you are spending you will find that there are two major ways to save.

One, if you have saved and can pay cash for any emergency, like getting the car fixed, then you will save a lot by not paying interest on that money which you would normally put on your credit card.

How are you spending your money?

Look at your expenditures. You may not WANT to save by doing without some conveniences but you CAN.

I have the opportunity to go in a lot of foreclosed homes. I am always amazed that there will be a cable TV connection in every room, yet these people could not make their house payment.

The same applies to renters that I have had in the past, they are behind, or just can’t pay their rent, but their cable TV is still on. People will tell me that they are late on their rent because they had to buy Christmas presents for friends and family. Folks, Christmas comes every year, at the same time. You have a whole year to plan and save for your Christmas purchases. Cut back on what you spend on others, or maybe eliminate some people from your list in order to take care of your basic needs first.

Another thing that I have noticed is people rent furniture but can’t pay their rent or house note. Go to a local Thrift Store and purchase a few items to get you buy until you can do better. You will save a lot of money. When I moved into my first home, I only had one bedroom suite. The other two bedrooms sat empty for several years until I could afford furniture for those rooms. And, I only had a couple of chairs in my living room.

Because of our hectic lifestyles people eat out a lot. Take a look at what you are spending on this item and allot some time on your off days to prepare some “make-ahead” meals so you won’t be tempted to eat out just because you are tired from the long work day.

Establish your priorities.

Get your priorities in order. You need shelter (a home or apartment), water, food, utilities, transportation to and from work, clothes and health care. If you have children they need the same things, plus school supplies and fees.

Budget the above items first. And, if you don’t have enough money to cover all these items, plus save some money, then you will have to change something about your lifestyle.

Either get a higher paying job, a cheaper place to live, maybe car pool or ride the bus or spend less on clothes. Thrift stores have some really nice clothes at much discounted prices. Maybe your children have to cut back on some extra activities which have large fees or equipment needs associated with them.

Change your mindset

In summary, you have to change to a mindset of “If you don’t have the money coming in to cover the expenses, then you have to increase the income or cut the expenses”. And buying things on credit is not a solution.

If you don’t know what your total debt currently is then get a Free Credit Score Report which will have most of the major items that you owe to someone. Note all these items plus any other items that you are aware of that don’t show up on your credit report.

Do your basic budgeting for bare necessities, then start attacking one debt item at a time. Pick the credit item with the lowest amount due and pay as much extra as you can toward this debt until it is paid off. Continue to make at least the minimum payments on your other debt. When you have this first credit item paid off then pick the next one and do the same thing with it.

Succeed with patience and determination.

Now, you are not going to turn things around over night. So, don’t begin with that mindset or you will get discouraged. The important thing is to work everyday toward your goal of reducing your debt and learning to budget and save so you won’t ever find yourself drowning in debt again. Keep in mind all the things you could have if you weren’t giving all your money to someone else for interest.

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