There is no doubt but that good debt management begins with good money management. Whether your goal is to pay off debt or to just do a better job of managing it you need to begin by effectively managing your money. Here are nine tips designed to help you do just that.
#1. Make a budget
If you’re not now using a budget you need to make one. Add up your monthly expenses and subtract them from your monthly income. We hope that you’ll find you have money left over to either save or use in paying off your debt.
#2. If your employer offers a 401(k) plan run, do not walk, to sign up for it
This is especially true if your employer provides matching funds – which is basically free money. Even if you’re only able to save a little bit out of each paycheck this will ultimately add up to big money over the long term.
#3. Start an emergency fund
Once you’ve determined that you can cover all of your expenses start an emergency fund. This is something you absolutely need to do before you begin investing.
#4. Concentrate on paying off your debt
The faster you get your debt paid off the quicker you’ll have extra income you can dedicate to saving or investing. We understand that it’s difficult to save when all your extra income is going towards paying on your debts. If you have debt with high interest rates, such as credit card debt, focus on that first.
#5. Prioritize your debt
The interest you pay on certain debts such as student loans and mortgages is deductible. When you can deduct the interest on a loan it’s actually costing you less. Be sure to factor this in when prioritizing how you will pay down your debts.
#6. Snowball them
Here’s what to do if you’re really serious about paying off your debts. Make a list of them with the names of your lenders, the due dates, balances and interest rates. You can do this with a piece of paper and a pencil or with a spreadsheet. It’s probably best to use a spreadsheet because your next step will be to order them with the debt that has the lowest balance at the top down to the one with the highest. Next, focus all of your energies on paying off the debt with the lowest balance while continuing to make at least the minimum payments on your other debts This should go fairly quickly. Once you have it paid off you’ll have extra money you can use to pay off the debt with the second lowest balance and so on. People owing as much as $20,000 have been able to use this method to become debt-free in just two years. It was developed by the financial guru Dave Ramsey who named it the snowball method because when you roll a snowball it gets larger easier than if you just try to pack snow together.
#7. Tackle those student loans
One really good way to manage student loan debt is by refinancing all of your loans into one with a lower rate. If all of your loans are federal loans you should be able to easily consolidate them into a Federal Direct Consolidation Loan. This will simplify things because you’ll be left with just one payment to make a month, which should be less than the total of the payments you are now making. Use all of your extra money to pay off those student loans instead of doing what many of your peers do right out of school and that’s buying a house or a car.
#8. Learn to love cash
When you pay cash for things instead of using a credit card it eliminates a lot of impulse buying. That’s because it’s just somehow more difficult to pull the money out of your wallet to buy that new tablet than swiping a credit card. If you have a budget you will know how much spending money you have available each month. Go to your bank or ATM every two weeks and take out half that amount. Use it to pay for all your variable expenses such as dining out, take home, movies,, lunches and so forth. You will need to be careful how you use that cash because once it’s gone, it’s gone. This will help you learn discipline in money management as well as cutting down on any impulse spending.
#9. Become a coupon collector
There are coupons available that can help you save money on just about everything. This is especially true of groceries. If your favorite supermarket has a loyalty program, get the card so that you’ll not only get deals automatically but also receive an email of thestore’s weekly specials. There are also numerous coupon-dedicated sites such as www.thecrazycouponlady.com, www.coupons.com and www.smartsource.com. In many cases you will be able to print out the coupons directly from the site or download them to your smart phone. There’s even a browser extension called Get Honey that will automatically apply coupon codes at checkout when you buy stuff online.