With the start of the holiday season upon us, we are consistently reminded of the joy of giving; either by TV commercials, articles in the media or a flyer received in the mail. Giving generally equates to more spending and when you don’t have a lot of money that can sometimes mean borrowing money.
Perhaps you already have a mortgage payment, a car payment or credit card debt, so adding additional debt during the holidays and trying to find a way to pay off this debt might be challenging.
Knowing how to manage your debt and sticking to a realistic budget isn’t always common sense, it is a skill that has to be learned, and unfortunately for some of us, we never truly master these skills. Creating a budget is one thing, however, sticking to it and getting out of debt is another thing.
Debt is a vicious cycle and once you get into debt you almost have to work twice as hard to get out of it. Whether you are in arrears with your electricity bill, struggling to pay your monthly mortgage or can only afford to make the minimum amount on your credit card each month, when you are in debt you are controlled by it. Make it your mission in 2017 to rid yourself of your debt and gain financial independence.
When dealing with debt, the first thing you need to examine is how much debt you have. You can start this process by checking your credit card statement, mortgage statement, and loan statements.
Without having an idea about the size of your debt, it will be difficult to work out an appropriate plan of attack. You can use a net worth calculator to review your overall financial position which will help you take all your debts into account.
Once you have an idea about your overall financial position, you can start looking at options for making extra repayments and clearing some of your debts. Depending on how much and what type of debt you have, there could be a couple of options open to you.
- 1. Paying off the debt with the highest interest rate first; or
- 2. Paying off the smallest debt first [so you feel a sense of achievement].
If you are struggling to manage your debts, it may be a good idea to roll all your loans into one loan. Consolidating or refinancing loans can work for some people if it means they pay less in fees and interest, with one payment per month. Make sure you can actually afford the monthly payment, no point consolidating if it puts you in the same position.
Next, create a budget and stick with it, regardless of whether you make a lot or a little, how you actually manage the money coming through the doors will determine your financial freedom. A budget allows you to sort out your money priorities and find the right balance between spending and saving.
Remember, debt shows you how good a spender you are, but budgeting shows how good a money manager you are. A budget gives you the tools to pay off a credit card or loan, plan better for your upcoming bills, and save up for a holiday, a big purchase or retirement.
It is important to keep focused and dedicated to your action plan for 2017 as this will help you settle past debt, control future debt and save more.
Published in Bernews, December 7, 2016
