Controlling Debt
By Kelvin E. Boston
Host, Moneywise PBS Series
The holiday season can be intoxicating. We celebrate that feeling of
well being by impetuously buying gifts for everyone in our lives using
that fresh new credit card with the higher limit that we vow to use
"just this once." But not long after we’ve swept up the holiday
confetti, in comes the credit card bill with its $3,000 limit
completely maxed out.
A word to the wise about holiday spending: Plan.
Most people in general get into financial difficulty because they have things they want or need to spend money on but no plan for spending. It is interesting to note that reckless spending habits and sloppy money management are learned early in our lives, usually as children, mainly because our parents may not have taught us how to manage money. And in many instances that was because no one taught them. By early adulthood bad financial habits are ingrained and those practices ultimately affect our lives well into our later years. The cycle continues in the next generation to whom we unwittingly pass on those same bad habits.
Controlling debt and developing strong money management skills is a matter of focused planning. Plan how you will spend your money. If you are already in financial difficulty or well on the way, your first big step is to sit down and admit that you may have a money management problem. Use that moment of clarity to formulate a plan, that with the right amount of effort, will work for you. Your plan should include all of the following:
Keep a Tab on your money
Choose a month as an assessment period. In a small notebook or ledger,
write down your income for that month. Each day record every cent you
spend. Keep receipts. This may seem tedious but is a good way to learn
exactly what you are spending your money on and most importantly how
often. If you have a credit card, if at all possible do not use it
during this assessment period.
The "B" word
Make a budget. Think of writing a budget as a financial blueprint for
financial freedom. Without a written expression of where we want our
money to go on a monthly basis many of us are given to impulse buying
or excessive self-reward, either of which can lead to less money to
pay the bills and to save. Be honest with yourself about what is
important to you and what you may be able to live without. Your budget
should include monthly bills like rent, auto payments and insurance
but also entertainment or fun cash.
Moderation
As you begin practicing the daily application of your budget, remind
yourself that this is for you and your financial well-being. Skimping
on your program will be to your own detriment. Spend slowly, always
sticking to your budget and stay away from the extra rewards you may
think your hard work may deserve. That cup of coffee or $10 pizza deal
may look and sound good now but remember you’ll be paying the
price for it later.
Credit: Use it responsibly
Credit cards provide the user convenient access to money in
emergencies or for short-term financial flexibility and leverage. It
should be used wisely. Use it only when you know the source for paying
back the loan. The proper use of credit cards can develop a credit
score that increases your buying power, allowing you to borrow more
money at a cheaper rate later on. But confusing credit for cash can
lead to improper spending habits. Credit is not an evil enemy that
must be dispatched, rather it is more like a curious toddler that
needs to be watched closely at all times.
Forecast: Stormy Weather
Keeping to a reasonable budget is a lot to ask without the additional
pressure of unforeseeable events. A blown hard drive or a set of bald
tires that have been begging to be replaced don’t have to be
ignored if you’ve prepared for such considerations. Always
factor a portion of your budgeted money towards the unforeseen that is
bound to occur. But remember to tighten your belt in later weeks in
order to make up for the sudden expenditures.
Grow your money
Your money should remain yours for as long as you need it. Begin
thinking of reasons to save and grow more than you spend. With that
kind of conditioning, you are less likely to spend impulsively. Simply
reminding yourself of how hard you worked for your cash should be
incentive enough to take care with it.
When in doubt
Never be ashamed to ask for help if you’ve gotten yourself in a
financial bind. Remember time and money work together. Time can either
help your money grow or it can cultivate staggering debt. Don’t
wait until the final hour to reach out and ask for the assistance of a
professional money manager.
Paying it Off
If you are still paying off balances on several credit cards for gifts
from last holiday season, here’s how to begin retiring that
debt. First, put the card away for now. Do not use it.
Plan to pay at least twice the minimum amount suggested; never pay just the minimum. List all of your consumer debt, starting with the account with the highest interest rate. Figure out the most you are able to dedicate each month to pay off the balance in say, six months or a year. Make those targeted payments. Simultaneously, pay as much as you can above the minimum payment on each of the other bills. Pay them all on time. When that first bill is paid off put the next highest interest rate bill in play and follow the procedure. Having the ledger to consult regularly is a great psychological boost. For one, it transfers the burden from your head to the paper and you can literally "see" your progress. Before long, you will be debt free and in control.
