If you’ve let debt take over your life, it’s time to take action. Here are some ideas for how to rein in your personal finances.
Look at Your Credit Card Bills
If you feel your personal finances have gotten out of control, look at your credit card statements in order to find the sources of the issue. Here, you’ll see exactly where you’re spending money in the most impulsive ways.
It’s a lot easier to spend with cards than with cash. Additionally, we lose track of our spending when using cards. It’s smart to use cash exclusively when you want to limit spending for certain categories—such as dining out or daily coffee runs.
Raise Your Deductible
A lot of people aim for the lowest possible deductible when getting insurance. The thinking is that insurance will be more likely to cover expenses if they need it. However, a lower deductible is likely to end up costing you more money in the long run. There are two reasons for this.
First, you’ll pay less on your premium if you opt for a higher deductible. The average person will save nine percent on their car insurance premium by increasing their deductible to $1,000 from $500.
The downside is that you’ll be liable to pay more if you do need to use insurance coverage. The more you use insurance, the more you’ll have to pay for your premium.
Evaluate Recurring Non-Essential Expenses
Do you really need to be spending money on all your current expenses? Unless you’re obsessively frugal, probably not. And if this is the case, you’re probably already well into the process of reining in your personal finances.
Are you really using that gym membership enough to justify its monthly fee? How about your various streaming subscriptions? These things can add up to a surprisingly large portion of your income. Consider canceling any recurring expenses that aren’t actually providing you a benefit for their costs.
Lower Your Debt as Much as Possible
Debt is one of the biggest factors that keeps people back from achieving their financial dreams. Unfortunately, it’s easy to let your debt get out of control, especially if an unexpected event causes you to need a loan.
Medical bills are cited as the top reason why people need to file for bankruptcy. If you’ve found yourself with a large amount of debt, it’s always better to try to find a way out as opposed to going through with a bankruptcy, which can destroy your credit for years.
Working with a debt negotiation company is one way to go about this.
Create a Budget for Your Personal Finances
Building a budget is one of the first things you need to do when trying to regain control of your personal finances. You can’t know the true extent of your financial issues if you’re not keeping track of all your income and expenses.
Make sure you add up all your sources of income, and all your spending. It’s important to increase your net savings each month if you want to pay down your debts.
Separate Spending and Savings Accounts
It’s not a bad idea to create a savings account dedicated to exactly that—saving. It’s smart to even do this at an entirely separate bank or credit union from where you have your checking account.
This will reduce your temptation to draw money from this account. You can set up direct deposits to automatically take a small portion of your paycheck and add it to this special savings reserve.
Don’t Pay the Minimum on Credit Cards
Some people see minimum credit card payments as a way to get more without having to pay for it. However, this is not a good approach to using credit—especially if you’re already in a tough place financially.
Personally, I use credit cards like cash and pay them off every month. The only exception is when there's a no-interest deal.
Credit cards come with extremely high-interest rates, which means you’re going to be paying a lot of extra money if you don’t pay off your balance, or at least as much as possible.
It’s easy to get into a difficult financial situation. But it can be a lot harder to get out of one, especially if you have a lot of debt. Fortunately, there are some tried-and-true options that can help you fix your personal finances.