The following is a guest post from Jack Reed. He is a financial writer with Oak View Law Group. He offers advice on debt related issues. Subscribe to his RSS feeds and keep yourself out of debt. If you want to submit a guest post you can read the guidelines here.
The most direful situation one can face today is being crushed under overwhelming debts. Modern life is expensive and being a little careless with your finance can land you knee deep in debt. Many financial institutions promise to help you out, but even they can be of little help if you are under massive debt.
Staying away from debt
The best way out is to be aware of your financial situation and spend as much as you can afford. But what if you are already handcuffed by your debts? Consider the following suggestions to help you get out of this stressful situation.
- Budget, budget, budget! : Chalk out a solid budget plan and stick to it. Your budget is your personal finance plan. Designate appropriate amount of money for your fixed expenses such as car payments, rent etc. and then estimate how much money you need for other categories such as groceries, clothing and entertainment. This way you will be less likely to overspend. What’s more, your budget would help to inculcate a sense of financial discipline!
- Buy what you really need: Many a times we purchase things which we can actually do without. For example, you go for an outing to the mall with your friends and a new pair of designer jeans strikes your fancy; you end up buying it for $200. With credit card in wide use, buying things in credit is also on the rise. The point here is that before buying anything, evaluate its usefulness to you. Do not be an impulsive buyer, take your time and decide if you actually need to purchase something.
- Take the $70 test: You can try out the $70 test if you think it’s hard for you to control your spending. Determine to use $70 for a week i.e. $10 for each day. Now that you know you know you cannot spend more than $10 per day, you are forced to be wise with your spending. This will make you realize what you really need to spend on and weed out unnecessary expenditures.
- Stop using plastic money: If you are one of those persons who spend beyond their means, then credit card is a death knell for you! Stop using your credit card. However, if you are responsible enough to never miss a payment and pay your balance in full, then you can use safely use credit cards.
- Manage your debts wisely: Do not panic if you are in debt. Instead, be proactive and chalk out a plan to shed your debts. A smart way is to move your debts to the lowest possible interest paying account. If you are in debt on your current credit card, you could be paying an interest rate as high as 18% while low interest cards can enable you to switch the balance at 0% interest for 6-12 months. Prior to balance transfer, see if the lower rate card has a reasonable introductory period so that you will have enough time to pay off your entire balance at the lower rate.
- Build up an emergency fund: Unexpected need of cash can arrive anytime and it is wise to be always prepared for it. In such a situation, relying on credit card or a loan will simply compound your problem. Keep aside a part of your income each month to build up an emergency fund. This can help you to survive a major financial crisis.
- Finally, read and learn: Make use of the free advice on the internet to help you manage your finances. Not everything is accurate, but this financial education will help you make better decisions for yourself and keep you away from debts.
Once you fall into debt, be wise enough to proactively fight it off completely. Do not wait for a time when it becomes extremely difficult for you to avoid your debt, this can prove to be very costly in the long run. We all know that prevention is better than cure, then why not be a little careful and take steps to avoid debts?