If the first step in getting out of financial trouble is knowing that you’re in financial trouble, then the next step is to take action to get out of that trouble.
First item on the menu is to budget your expenses. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Again, make sure you stick to the plan.
Then try and cut out any unnecessary spending such as dining out too much and haunting Circuit City, E-Bay or Home Depot. Don’t be above clipping coupons or purchasing generic products at the supermarket. If you feel you can’t resist using your credit card switch to a bank debit card where money is immediately draw from your checking account to pay for a purchase.
If you have revolving credit card debt try using money from your savings account (normally they’re low-paying interest accounts) and use the cash to pay off your high-interest rate credit card bill.
Above all else, formulate a financial plan for the short and long term that includes a monthly budget and a savings account deposit goal of six months worth of your annual salary. Build a plan that will allow you to meet your basic life needs and one that will allow you to sleep at night. If you do create and maintain such a plan, you’ll be sleeping like a baby before you know it – with not a red flag in sight.
The reason people get into serious debt situations is a lack of a real-world financial education. How to budget. How to live on a limited income. How to avoid credit troubles. Those kinds of things.
One solution to the problem is to tally up your income and your outflows and see where you are, debt-wise. Another is to recognize how much debt is too much debt.
There are some other big, hard-to-miss red flags that tell you you’ve accumulated too much debt. Here are a few signs that you just might have too much debt:
If you’re in the habit of post-dating checks, you just might have too much debt.
If you habitually pay bills late, you just might have too much debt.
If you had to sell valuables, like a car, an old baseball card collection, or a family heirloom piece of jewelry, you just might have too much debt.
If you’ve ever taken a cash advance on a credit card to pay off another bill, you just might have too much debt.
If you’re forever borrowing money off of family and friends, you just might have too much debt.
If it’s early in the calendar year and you already have a cash “crisis” you just might have too much debt.
If you’re surprised by the amount of money you owe on your credit card, or the low amount of money you have in your bank account, you just might have too much debt.
If you live from paycheck to paycheck, you just might have too much debt.
To figure out if you have too much debt, use one of the many online loan repayment and income estimation calculators available on the Internet. They’ll help you calculate how much debt you have, how much you can afford to pay, and help you develop a budget or action plan to get out of debt. Two of the best available at this time are:
CNN Money
First Consumer Credit