Yes, it’s true: spending money is fun. Buying a new TV, treating yourself to a massage, taking a vacation — all of these things can feel, well, awesome. Especially when you’re rewarding yourself for the hard work you do. But going into debt to be good to yourself? That takes a little of the shine off the experience, doesn’t it?
Fortunately, it’s possible to enjoy life and manage debt, at the same time!
You’re a grown up, so you probably don’t need to be reminded why racking up debt is a bad idea. But it never hurts to recap a few ways to reign in your personal debt and stay on track to help meet your long-term goals:
Set up a budget to track your expenses and spending. Try our Budget Calculator to get started. It’s easy to use and it even gives you a chart showing where your money is going.
Use cash for everyday purchases like groceries and eating out. You’ll automatically start to rein in your spending when the money comes right out of your pocket.
Carefully monitor your credit card spending each month. Try not to spend more than you can pay off in full each month.
Pay more than the minimum amount due. Paying just the monthly minimum on credit cards can add extra years to pay off your balance because of all the additional compounded interest you are paying.
Pay off the credit card with the highest interest rate first. Then pay off the card with the next highest rate. You want to pay off highest interest rates first because they eat up more of your income.
Pay off credit cards and short-term debt before paying off home mortgages. Interest paid on short-term debt is not tax-deductible. But mortgage interest is.
As you pay off your credit cards, keep paying into your savings plans. If you're still working and don't have a retirement plan, it's easy to open up an IRA account. An IRA lets you save for your retirement without paying taxes on the money your savings could earn while in the IRA.
Avoid paying off credit cards by borrowing against your home or 401(k). Your home and retirement are important assets. Try not to put them at risk.
A little debt is OK (and sometimes unavoidable). It’s part of life. The key is to manage debt while you continue to save. Create a balance and you can treat yourself now and then, while preparing for bigger goals like buying a home, tuition, retirement and more.
Once your highest interest rate account is paid off, focus on paying off your card with the next highest rate and continue to do so until all of your debts are paid off. This strategy, known as the debt avalanche payment method, could save you significant amounts of time and money in the long run.
Mini goals will help you to stay the course. These goals can include: Sticking to your budget for three months, paying off your first credit card, saving a certain amount for emergencies, or even your first month without collection calls.
What is “bad debt”? Simply put, “bad debt” is debt that you are unable to repay. In addition, it could be a debt used to finance something that doesn't provide a return for the investment.
A reputable credit counseling organization can give you advice on managing your money and debts, help you develop a budget, offer you free educational materials and workshops, and help you make a plan to repay your debt.
Treat Yourself. Set an amount—say, $100, or one or two month's worth of payments—and treat yourself to something you've said no to over the years as you've paid back your debt. Maybe it's a massage, a new outfit, a new couch, or a nice dinner. Whatever it is, make sure it's something you really want.
Stay on top of your debt by using bill reminders and Online Bill Pay. Simply schedule the amounts you want to pay and when you want to pay them. You can also set up payment reminders and receive eBills from payees offering electronic billing.
Make sure you have three to six months of living expenses in reserve before you think about paying down your loan early. Although it might make good financial sense, paying off a loan early is unlikely to improve your credit score.
Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.