It can be tough to get out of debt, especially if you are a single parent living on one income because, let's face it, kids are expensive. But getting out of debt is easier than you think if you stick with these three simple tips:
Stop Using Credit Cards
Sounds simple…and it is! Having a credit card in case of emergency is one thing; but very few of us are able to limit their use to just that. I often hear the following excuses:
I didn’t have enough cash to pay my electric bill so I charged it.
My son needed a new pair of sneakers for school, so I charged them.
I didn’t have cash to put gas in my car, so I charged it.
My roof was leaking so I charged the repair bill.
Are these all emergencies? Maybe for some of us, but they all could have been avoided by having a budget and an emergency fund. Debt can be a vicious cycle; without an emergency fund you are unprepared for life’s unexpected twists, such as a leeky roof or new sneakers. Without a budget you are at the mercy of what’s in your bank account.
If you don’t cut up your cards, you WILL continue to use them and incur more debt. So stop making excuses and grab a pair of scissors.
Just because you cut them up doesn’t mean the debt goes away with them so, there are a few more steps you need to take:
- Cancel all recurring payments (such as gym memberships, magazine subscriptions, and insurance renewals) set up these payments to draft form your checking or savings account.
- Call your credit card companies and ask for a lower rate. You may not get a yes the first time, but, persistence beats resistance so keep trying!
- Make more than the minimum payment each month.
- Don’t cancel your credits; by cancelling them you are decreasing your amount of available credit and this may cause your credit score to drop.
Start An Emergency Fund
Financial experts argue all the time about how much you should keep in an emergency fund. Some say six months worth of expenses while others say a year; the important thing to understand is that something is better than nothing. If you can only save $25 a week, than start with that. Use this savings instead of your credit cards for true emergencies.
There are a few things to keep in mind when it comes to emergency funds:
- You want your savings to be liquid; don’t put it in a CD.
- Keep your emergency fund separate from your checking account.
- Start today, don’t wait till tomorrow.
Create A Budget And Stick To It
One of the most overlooked components of creating a budget is making sure it is realistic. Reducing expenses by 50% is unrealistic, whereas reducing expenses by five or ten percent is much more realistic, and attainable.
- Track. Get a notebook and a pen or a free budget planner and track all of your expenses for two weeks. Include every expense, whether it is your mortgage payment, or your morning coffee. Be diligent and thorough. This information will serve as the foundation for your budget.
- Organize. You can use paper, a spreadsheet, or free online spending journal to create your personalized spending plan. Categorize the expenses in a way that makes sense to you. Entertainment, medical, housing, transportation, and groceries are a good place to start.
- Cut, cut, cut. This is the difficult part. It is time to identify and cut expenses. Gym memberships, magazine subscriptions, cell phones, and cable packages are all great items to review and cut if you are not using them on a regular basis. Make the cuts realistic. You don't have to starve or go without basic necessities and essentials.
- Review. Sit down every three months and review your spending. Based on your performance, you may find other areas to cut, or find that you have done such a good job that you can put a few extra dollars towards your emergency fund.
Getting out of debt is never easy but if you follow these simple yet powerful ideas you will be on track to getting out of debt in no time!
Suzanne Cramer is a certified credit counselor and a Social Media Specialist for CareOne Debt Relief Services. Suzanne writes for Divorce, Debt and Finances and Major Life Challenges. Follow Suzanneon Twitter @where she shares her insights as a single-divorced mom with tips and tricks to keep your finances in check.