It was announced last week that Americans are carrying close to $800 billion in revolving credit. It’s little surprise that the lion’s share of that massive amount is due to credit card debt. Most of us have big plans going into the new year; plans that include paying down some of that debt. We reined in our experts and asked them to share with us their sure-fire ways of meeting our financial goals so that we’re looking at a better financial future this time next year.
The absolute first step that all of our counselors agreed on – and not surprisingly, it is at the top of all of their lists – is understanding what you owe, who you owe it to and which of your accounts is costing you more to own.
Afternoon of Truth
It’s simple, they say. Set aside a Saturday afternoon, gather all of your bills and go through them. Pay attention to your balances and APR on your credit cards. Understand the balance isn’t what you owe – your APR is as important as the balance itself and affects what you owe. Take advantage of online calculators and also, if your spouse isn’t the primary bill-payer in the family, maybe it’s time to bring him or her into the mix, if for no other reason, than to ensure they know what’s what.
Next up, take a long, hard look at your spending habits. Resisting adding new debt is part of the challenge. If you can master that and rein in spending, you’re well on your way to a debt-free life. Ask yourself those tough questions – are you an emotional shopper? Are you always “a day away from payday”? Or are most of your expensive charges for emergencies? Car repairs? That run to the emergency room after your little one broke her arm on the soccer field? If you can differentiate what’s important and what’s not, you can better understand things like triggers and priorities.
Priorities
And speaking of priorities, our counselors also agree that most of us lose sight of what’s really important. In one example, one of our counselors told the story of the young, single mom who went all out for her daughter’s fourth birthday. Instead of a small party with her classmates at the local skating rink, Mom instead placed the setting thirty miles away in a bigger city. She planned a big party that included renting out an entire restaurant. The weather was bad that day and less than half of those invited showed up. She said she looked over at her daughter halfway through the party and saw that her daughter, unaware of the low turnout, was having fun with her cousins and close friends from class. She knew then the other “fluff” wasn’t for her daughter’s benefit. “She did it for her daughter, but she didn’t stop long enough to remember that to that little girl, it was less about where the party was, but who was there.” It was an expensive lesson learned.
Don’t underestimate the power of a budget. We’ve said this before: if you’re disciplined enough to create a spreadsheet and keep it current, then clearly, that’s what you should do. If you like the idea of an “old school” method of a pencil and yellow pad, then make that happen. It’s not about how advanced your methods are, it’s about how dedicated you are to making changes. Period. And yes, it really is that simple.
We’ve all heard the saying of “pay yourself first”. The problem with that is most people immediately shut down when they hear that. Their first reaction is, “That’s not possible. I don’t even have enough to cover the groceries and the light bill”. Of course, that’s your priority. If, though, after you’ve covered your monthly expenses and you have a grand total of $8 left, then take that money and put it in your savings account. Don’t go into it thinking it’s “only” $8, think of it is a few more dollars that’s going to earn more in a savings account than your wallet – and you’re less likely to spend it. Next month, it might $20 that you can add – but do it. Then you have $28 dollars that’s earning interest. Think small if you have to, but plan big. And keep your eye on what’s going to happen each time you’re able to resist spending that money.
Focus
Maintain your focus, too. Recognize that a Saturday spent organizing your finances must include consistent follow up. Pay down those credit card balances that have the higher APR and the higher balance. Once that’s done, move to the next one. Always pay more than the minimum due and never pay late. If you have a late payment and it’s the only one you’ve faced, consider calling your card company. They may agree to waive that fee and even agree to not report it as late. They don’t have to, but you might be surprised at the courtesies they’re willing to extend a good customer.
Don’t be afraid to make those big changes. If you have two credit cards and one APR is significantly lower than the other and if it’s a card that allows balance transfers, consider moving your balance to the lower interest card. You can save money you probably aren’t even aware of. Remember to maintain your discipline though. The last thing you need to do is reward yourself for bringing one of your credit cards to a zero balance because you know that’s not at all what you’ve done. In other words, don’t cancel out a strong financial decision with a moment of weakness.
If your financial situation is truly dire and you recognize maybe you’re not always the most prudent money manager, don’t be afraid to ask for help. Here’s the thing – no one is born a strong money manager. Those few that we equate to experts clawed their way to their positions, too. And they made mistakes along the way – they’re just fortunate enough to be able to share what they learned from those mistakes with the rest of the world. Strong money management skills are learned. Take that leap of faith and allow someone else to step in and share their knowledge with you. Consider the rewards that come from such a powerful decision.
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