DEBT GOT YOU DOWN?
Michigan Credit Union League - Your Money Matters
OK, the holidays are over and now the bills start arriving. Finding yourself over your head in credit debt doesn't take much these days. Many of us acquire our "wants" by obtaining things on credit. Problem is, the more responsibly you handle credit, the more credit you are offered to achieve the lifestyle you desire. If not careful you can become enslaved by credit -- always paying for the past with nothing in reserve for the future. For many, credit becomes the only way to maintain their current lifestyle. If you find yourself barely meeting your bills, or are already swamped with debt, take control before it's too late.
The first step is to analyze your spending habits. Keep a detailed spending record for one month, to start. Once you see where your money is going, you can evaluate your habits and make better choices. For example, spending $4 for lunch each work day costs $20 a week, $86 a month, and $1,032 a year. Brown-bagging a few days a week may not seem like such a bad idea.
Once you get a handle on what you're spending, design a plan to cover all your expenses each month from entertainment to clothing to auto repairs. Remember to include for upcoming expenditures such as insurance and tuition. As you get better organized, you will set yourself up to succeed.
Within your plan, set attainable goals. Short-term and long-term goals will help you to reduce your debt. For example, set a short-term goal to pay off your credit card debt. Determine a time frame and carry just one card for emergency use only. Another goal could be to refinance debts, where possible, to obtain lower interest rates and reduce your monthly payments.
Make a promise with yourself that you will borrow for productive purposes only, not non-essentials. Installment credit ideally should take less than 20 percent of your take-home pay. When you include rent or mortgage payments, the ratio should be no more than 40 percent of your paycheck.
It's also important to involve your spouse and children on a regular basis to gain their cooperation and support. Review your plan and make spending decisions and future goals together. A spending plan gives you a way to get a clear picture of your wants and needs and distinguish firmly between them. A plan will also help you to reduce your current debt and gain control of your finances today and into the future.
If you need help setting up a spending plan, ask your financial institution how you can get free financial counseling. Many credit unions and some banks provide financial counseling for members. Or call the non-profit Credit Counseling Centers at 1-800-388-2227 for the counseling office in your area.