Budgeting Strategies for Getting Out of Debt

[ 0 ] September 5, 2012 |

by: Laura Edgar is a senior writer for NerdWallet.com, an unbiased personal finance website committed to promoting financial literacy.

No doubt about it: debt is scary and overwhelming. One of the best ways to help yourself out of it is to take a critical look at your spending habits and create a realistic budget. You’re in for a lot of hard work, but here’s the good news: you don’t have to do it all by yourself. Read on for some simple tips on managing your money, making payments and seeking professional help.

Take advantage of financial counseling

One of the best things you can do for yourself is to meet with an unbiased expert. If you’re looking to get help in person, try a non-profit organization like the National Foundation for Credit Counseling. You can also find a list of credit counseling organizations approved by the United States Department of Justice here. Debt counselors have great advice for reducing your payments and coming up with a realistic budget for your unique needs. Avoid working with any organization that requires you to give a bunch of money or information up front. They might be trying to scam you!

Use free, online resources to help you

IAA Credit Union offers several free, online financial coaching resources. The Anytime Adviser contains audio and video presentations that walk you through good money management practices. Debt in Focus is a financial planning tool that gives you a complete picture of your debt and suggests payment strategies.

Tackle debt in pieces

Rank your debts by highest interest rate, not highest balance. You should work to pay off the top one first, until it’s gone, then stop using that card or loan service completely. Then, do the same for your next debt, and so on. Tackling each debt individually will help reduce the overall amount you have to pay. Setting reasonable goals will also help you stay motivated.

Prioritize your purchases

You need to pay your rent or your mortgage, and your utility and grocery bills. If you’re legally obligated to make any payments, like child support, make sure those are a priority as well, or you’ll risk jail time. Other than that, if you don’t need it, don’t buy it. You may have to live without some of the comforts you’re used to, like cable television, but it’s worth it to pay off your debt.

Track your expenses

Every single time you buy something with cash, or make a payment, write it down in a “spending journal”. If you aren’t doing this, you should at least closely monitor your accounts online. This may seem like a lot of work, but we recommend it because it works. If you’re tracking all your payments, it’s much harder to make frivolous ones. If you’re in debt, you can’t afford to make frivolous payments.

Don’t rely on your credit card

Don’t use your credit card to help you stretch your budget; that’s probably the kind of thinking that got you in trouble in the first place! Instead, make payments with cash or your debit card.

Start saving

No matter how tiny the amount, make sure you’re putting some of your income in a savings account every month. Sure, you’ve got a lot to pay, but you’ll get into even more trouble in the long run if you don’t start building an emergency fund. Your IAA share savings account earns interest, so you’ll actually make more money for putting money away.

Use bankruptcy as a last resort

Although bankruptcy allows you to discharge your debt, and protect your property and income, it’s also expensive. Filing fees cost over $200, and that doesn’t include lawyer fees. It also hurts your credit score, and once you file, you can’t do it again for another 8 years.

We hope you find these tips helpful. If you’re looking for more money advice, we encourage you to stop by and visit us. IAA Credit Union has certified financial counselors on staff to answer all of your question, free of charge. We are committed to your financial success!

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