People can get into debt for a number of reasons. It could be because of job loss, expensive medical bills, maybe an obsession with now worthless beanie babies… but most consumers end up in debt because they use their credit cards to make small everyday purchases. Regardless of how you got into debt, if your goal is to reduce your debt load, the first step is to adjust your spending habits.
You can start by creating a careful budget. This is simply identifying how much money you earn on a monthly basis, and how much you spend. The key is being able to identify every expense, like groceries, rent, haircuts, utilities, credit card payments, transportation… everything. From there, you can find areas where you can save and build your budget (what you can afford to spend each month). For some help, download ACCC’s Free Personal Financial Workbook.
It’s important to set up a budget in order to determine the best strategy for dealing with your financial situation. Whether you have a full time job or you’re barely scraping by on unemployment, creating a careful budget will make your money last as long as you need. For example; it may not seem like a big deal to spend $4 for coffee every morning, but over the course of a month those small transactions add up. By creating a careful budget you may find that you can no longer afford to spend $80 a month on your morning coffee, which is more than what most people pay for 2 weeks’ worth of gas.
Budgeting should also be a family affair. Everyone in your household should be aware of your financial situation and be a part of the solution. Having an honest discussion with your kids about how and why they may have to do without some things for a while will help you make the necessary cutbacks.
For more budgeting tips and resources, visit ConsumerCredit.com.