This is a guest post by Richard of Simple Living Australia, a personal finance blog out of Sydney Australia. They provide a range of information covering everything finance with an emphasis on getting out of debt and savings.
Extraneous spending and poor money management can result in personal loan and credit card debt. Unsecure debt can be a huge burden on families. The good news is that there are lots of changes you can make to get out of debt and stay out. Here are some tactics to accelerate the reduction of debt and take back financial control. These personal finance tips will help create positive financial habits.
- Create a Budget. This is the most important one right here. List all your monthly bills and necessities and make sure they are covered by your income. The remaining money can be spent as long as you stay within budget. Make sure to put part of your extra money into savings each month. A good rule of thumb is to save 10% of your income every month.
- Pay Off Your High Interest Card First. High interest credit cards cost you so much money. Pay off these accounts then close them. As long as you still have four accounts open you can establish a positive credit history.
- Switch to Cash. Use cash for your everyday spending and have the credit card for true emergencies. Cash will help you keep track of your spending. Don’t keep the card in your wallet, because it will be too tempting to use it.
- Cut Your Spending. Spend less money on dining out and entertainment while you are paying off your debt. Skip the vacation this year to save even more money. Treat yourself to something nice as a reward when your debt is paid off.
- Reduce Your Bills. You might be able to find a way to lower your monthly bills if you refinance a loan, shop for a better interest rate, and try to save money on your utilities. You can also downgrade your cable TV service or get rid of any monthly services you don’t use very often.
- Become a Bargain Hunter. Use coupons and deal websites to save money on your purchases. With a little extra effort, you would be surprised at how much you can save.
- Increase Your Income. Ask for a raise, get a part time job, or do some side projects to earn extra money.
- Pay More Than The Minimum Payment. If you want to pay off your debt, you’ll have to pay more than the minimum payment. Set a realistic goal so that you still have enough money left over for your regular expenses.
- Get Educated. Go to the library and check out some books about personal finance and getting out of debt. There are also many great resources on the Internet.
- Sell Items You Don’t Need. Everyone has items they don’t need just sitting around. Sell that treadmill you don’t use on Craigslist for some extra cash and put the money towards your debt.
If you follow some of these tips, you will be headed in the right direction and on your way to debt free living and be able to enjoy a simple living. Be patient and stick with it. You didn’t get into debt in one day, so it’s going to take more than one day to get out. Once you’re out of debt, invest, invest and invest!
Editorial note: There is nothing much I would add to this list. I like the idea saving money even during paying off the debt, because in my opinion this would start creating a cushion for your emergency so if something happens, you do not have to borrow money again. If you wait for you debt to be paid off and then start saving, you may be waiting for several years. The only thing I would say is try to save first before you touch the rest of the cash and make it a rule.
Reducing bills is another great option by evaluating what services you really need, such as a magazine subscription, extended cable subscription and so on. If you review your current situation you will be able to find some reductions. I did it a few years ago and found tremendous savings.
I still have problems switching into cash, because at the end of the month or two weeks I do not have much left, since a lot of my money goes currently towards the debt. A good strategy can be trying to create a one month salary reserve on your account and then start using cash, but you will always be spending last month (or bi-week) paycheck, not the current one.
And the last note is about investing. I have my own experience with that. My current interest I pay to creditors could easily completely fund my ROTH IRA account, so why paying it to the creditors when I can save it for my future? Isn’t that a great reason for eliminating the debt as quickly as possible?
How are you managing your cash to reduce your debt?