Why it is time to clean up your finances

Now that the New Year has arrived, many people have decided to do something about the debt load they are carrying. Carrying debt on credit cards and owing money on financial loans is a common occurrence in our economy. It is easy to use credit cards to buy everyday essentials and luxury items. The problem comes when this debt is not immediately paid off.

Credit cards carry high interest rates and the longer the debt is left on the card, the more the cardholder is charged. Interest rate charges can really add up and potentially hundreds of dollars can be added onto the credit card bills every year. Fortunately, there are several things that can be done to bring the debt to a more manageable level.

Prioritize Your Debt

The most important thing is to start setting a realistic budget and take note of all expenditure during a month. How much money is coming in and how much is flowing out should be noted down and then used to plan ahead. Take note of all unnecessary expenditure, such as morning coffees at the upscale coffee shop.

If you really want to make a realistic dent in your debts, these kinds of items should be cut out of the budget and the money should be used to pay off debt instead. The highest interest debt should be paid off first. Cutting out restaurant meals for a while will also help create a positive cash balance that is large enough to start making major dents in the debt load. If there is a car loan, it is a good idea to make as large a monthly payment as possible to decrease the number of years for loan repayment. This can save thousands of dollars over the life of the loan.

It may be possible to refinance the home mortgage if there are lower interest loans available. The old, higher interest mortgage can then be paid off and the new lower interest rate can help speed up repayment of the new loan. Instead of cutting back on the payments because the interest rate is lower, it is now possible to make the same or higher payments as before to get rid of the debt quicker.

Making a habit of paying cash for items is a good idea because it helps avoid the temptation of putting purchases on credit. If this system is implemented, it is not possible to buy something that is not within budget.

Change Your Lifestyle

Using public transport a few times a week can help save on fuel costs. It may be possible to arrange a car pool with fellow employees. Another way to save money is to buy clothes at second-hand stores. Many stores carry designer labels that are like new and at a fraction of the cost. It’s possible to be fashionably dressed without spending a lot of money. Instead of buying magazines and books at stores, get them for free at the library.

Most cities and towns have community libraries that carry many titles of books and magazines. The money saved from these efforts can be used to pay off debt or to start a savings account. It may take some getting used to when implementing these measures, but many people find that these small changes do not impact their quality of life and debts can be repaid so much quicker.

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