Learn how to take charge of your finances with these simple tips about consolidate credit card debt, budget and saving. You are finally ready to take control of your finances but you aren’t quite sure where to start. The first steps to taking charge of your finances means lowering credit card debt, creating a budget and begin saving. Below are some tips on how to get started taking charge of your finances.
Consolidate Your Credit Card Debt
The very first thing you should look into is consolidating your credit card debt. Credit cards are tempting to use and it is easy to spend much more money this way than if you had paid cash. But now it’s time to face reality and add up exactly what you owe on each card. This includes major credit cards and department store cards. Once you know what your debt is you have a few options as to how to consolidate it.
1. Move as much of the debt as you can on the card with the lowest interest rate. Many times department and specialty store credit cards have much higher interest than your major credit card. Moving over the debt will save you considerable interest throughout the year. You will also be able to make one payment each month instead of having to make several payments to different cards. 2. If your credit is good you probably receive offers in the mail for credit cards with low-interest or 0% interest on balance transfers during an introductory time period. Consider opening one of these cards and transferring as much of your credit card balance on it as possible. Even if you only get a few months of no interest you will save hundreds of dollars in interest while paying down the balance. If you do this make sure to cut up or put away the other credit cards you have so you are not tempted to use them. The goal here is to pay down your debt, not add to it. 3. If you can’t move your balances onto one credit card you should try to pay down the credit card with the highest interest rate first. Pay as much as you can afford on this card and continue to make the minimum payment on the other cards. Once the high-interest card is paid off you can begin to pay a larger amount on the next highest interest card. This will save you in interest payments in the long run. 4. Another option is to check with your bank on a loan or line of credit to pay off your credit cards. Interest on these is usually lower than credit cards so you will be able to pay down the balance quicker. Be careful if you use your home for collateral to get this type of loan. If you default on the loan you can lose your house so make sure you can make the payments easily before signing on the dotted line.
5. Refinancing your home in order to pay off credit card debt may sound like a good option but you should really think this over carefully before doing it. The interest is usually lower but you put your house at risk if you default on the loan. Also, it is tempting for some people to begin using their credit cards again once they are paid off by the money received by refinancing. It would be better to leave your home out of it and consolidate your debt to one loan or credit card.
Budget, Budget, Budget
To many people budget is a dirty word but unfortunately it is necessary in managing your finances. Sit down and make a list of all your net income. This is the income you actually take home, not the gross pay that you make. Next, make a list of all of your expenses. You should list the monthly expenses you absolutely have to pay first, like your mortgage, electricity, heating & cooling, etc., and then delegate what you can pay monthly to each credit card bill. Don’t forget to budget in the cost of groceries, gas and all those other expenses that don’t actually come in a bill form but that you have to pay. By listing out your income and your expenses you will have a clear picture of your income versus expenses. This may also show you what items you could cut back on in order to pay down your credit card balances quicker. The main reason for a budget is to see where your money is going and how you can manage your money better for a more secure and debt-free future.
Saying you should start a savings account seems contradictory after saying you should pay down your debt but the truth is you should have a rainy day fund to fall back on. If you can find even a few dollars in your budget each month to put away in a savings account, by the end of the year you will have a cushion that you can use instead of using credit cards. Try allocating as little as 5-10% of your income and as time goes by raise this percentage. Learning to save now will help you later on as your debt lowers and your savings rise.
Changing your spending habits can be difficult but you should think of it as a benefit to your future instead of as a punishment for your over-spending past. It won’t take long before you see yourself clear of debt and have money in the bank. Taking charge of your finances is a great way to begin taking charge of your life.