Financial Zip

We have a crisis going on in the financial world right now. As we have seen over the last 7 months the credit crunch has affected everything and everyone in its path. A lot of people are defaulting on their mortgages and going into foreclosure and consumer debt is at an all time high.I had a student that I talked to recently and she said to me that she was in still in debt after going through a personal finance program. My immediate question to her was do you know where you money is going? No? Well that figures that most people have no idea where there money is that is why they are in debt.. Some people adopt the attitude that if I don’t know about it somehow it makes it better. Wrong. Not knowing about it makes you stupid. I might get some backlash on that last comment but it’s true. A lot of people just want to ignore the problem and by doing that the problem will go away, and as we all know that doesn’t happen.

The fact is that getting out of debt is completely doable and can be done. So here are some thing you can implement that will get you on the road to financial independence.

Know why you are in debt.

The problem with most people getting into debt is their behavior. If you don’t know your behavior you tend to end up in the same hole that you’re in. So, is it due to losing a job, did you buy a house you couldn’t afford, maybe you just have to buy everything. The key to changing behavior is to know where your financial weakness is coming from.

How serious is the problem

Sit down one weekend and list out all that you owe and all the income you have coming in. I find this to be a very eye opening exercise. It may take a couple hours but its worth it in the long run. The benefits to doing this are one, it gets you organized, second, you find out how seriously deep in debt you are. But going through those numbers can show you what the possibilities are. If you have credit cards with high interest rates get those lowered, if you are spending to much on your insurance home or auto, shop for better rates. Other strategies would be to cut expensive services like premium cable, cell phones. Find the areas that you need to cut back on.

The fact is that most people know these principle but they get lost in translation. So, relearning these lessons needs to be a priority to get you out of debt purgatory. Personal finance and financial independence really boils down to a principle that Benjamin Franklin taught. You either decrease your expenses, and live on what you currently make, or you increase your income and decrease your expenses at the same time. That is it. Mind blowing. So get to the bottom of the problem and then work your way out.

Things to do

Make sure you set goals. Figure out your debt load, figure out how long it would take to pay it down, then figure if you added x amount of dollars on top of that debt how much faster you could get out it. Here is a great calculator that can help you figure this out. Debt Calculator. Be sure the goals you set are have specific dates and amounts with them. i.e. I want o be out of debt August 1st, 2015 by putting $200 extra to my debt a month. That is specific and you know how much you need to put to it.

Manage your credit score. This is essential. Maintaining your credit can cost you hundreds of thousands of dollars over a lifetime if you have bad credit you will pay a lot more in interest. The better your score the more you save. You can obtain a credit report for free each year from the 3 credit reporting agencies at annualcreditreport.com. I would recommend obtaining 1 report from one of the agencies every 4 months that way you can look at your credit report every 4 months. Be sure to pay your bills on time and try to decrease your debt.

Get in the habit of tracking your spending. Like I said in the beginning you need to know where the money goes. If you don’t your just an ostrich with its head in the sand during a tornado. It won’t do any good to ignore it. I recommend mint.com, quicken, or msnmoney to manage and track your account. You can also use excel to create a simple spending journal.

Reduce your interest rates and spending. It is a good idea to call up your credit card companies and ask them to reduce your rates. Do this once a month. It doesn’t hurt to ask if they say no just keep trying until they do or you can transfer your balances to a low interest rate card creditcard.com has a list of a number of cards that offer that service. In your daily and monthly spending cut back on spending where it is possible.

Once on top stay on top. Finally when you have completed getting out of debt it is time to maintain and get ahead. Simply just use the plan you put into practice and follow it. I find that if I review it on a weekly basis it will help me focus on what I need to do to stay on track and living the dream.




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