Debt is pretty much a fact of life for most Americans, especially in today’s post-COVID landscape. Most families do not teach their children how to responsibly manage money, which leads to problems down the road. The majority of today’s workforce has learned money management through trial and lots of error.
It is far too easy to get overextended on your finances, and most people do not realize that they are in trouble until it’s almost too late. When you are already stretching your finances to the limit, any unexpected bump can send you down the road to bankruptcy.
If you are wondering if you’re overextended or starting to struggle with debt, the following signs show you are in danger:
- You don’t have any savings, or you have to pull from your savings every month for expenses
- Other than your car payment and mortgage, you could not pay off 100% of your debt within 1 year
- You do not actually know how much you owe
- You use new credit cards to pay off old credit cards or loans
- You use credit cards for everyday expenses
- You always pay only the minimum due on your credit cards
- You have paid your credit cards late or skipped payments
- More than 20% of your actual take-home pay goes towards debt
You do not have to be behind – if you’ve got credit card balances that never seem to get paid down because you are always making new charges, that is a dangerous situation. A sudden accident with big medical bills or even the loss of your job would send you spinning out of control.
If you said yes to any of the items above and think you might be overextended, you should take immediate steps to get your financial situation under control. If you can regain control and stay on a healthy path, you’ll be able to avoid filing for bankruptcy.
Here’s how to get your finances on track:
- Figure out exactly what you owe. It can be scary to sit down and look at the big picture, but you need to know the exact number. Once you know exactly what you owe, you’ll be able to make a plan.
- Look at your total take-home pay for a single month. This is the most important number, because you have to create a plan where you’ve got more coming in than what you’re spending.
- Create a detailed budget. Figure out what you have to spend for the essentials – shelter, utilities, food, and transportation. Don’t count your credit cards or any other expenses here – you need to set your number for necessary expenses so you know what’s left over each month.
- Take the money that’s left over and start applying it to your debts. Pay the minimum amount due on every debt except one, and push as much as you can afford towards that balance. Once you’ve paid off that debt, move on to the next. If you make a solid, realistic plan for paying off your debts, it’s much easier to stick to your budget and be responsible with your money.
- Once you’ve paid off most of your debt, start saving. Build up your savings in case an unexpected event comes up – you don’t want to have to start all over!
Most importantly – stick to your budget even after you’ve paid off your credit cards. If you stick to your budget and plan ahead for big purchases, you’ll find that it is easy to stay on top of your finances and avoid debt altogether.