If you are struggling with debt, it may feel like you are in quicksand. No matter how hard you try to get out, it keeps pulling you back in. You aren’t alone. According to a survey conducted by CreditCards.com, in 2019, a quarter of all Americans are expected to die in debt.
There are a few root problems that tend to get people caught in a debt cycle. Fortunately, understanding these issues can help you to take on your situation more effectively. Additionally, with the right help, you can implement a strategy that will see your debt-free sooner than you think.
- You’re Only Paying Interest
Whenever you make a payment towards a debt, part of your money is going towards the principal (the amount you owe) and part is going towards interest. If you are only making minimum payments, a lot of the money you are contributing is only servicing the interest. In other words, you are paying money to your lender but not paying down your debt.
Many people don’t realize how significant this split is. Take a look at the details of your debt statements. This will show you how much interest was charged on your account in a given period. Subtract that from your payments to see how little you are actually impacting your debt.
- It Takes Lifestyle Changes
You can’t spend your way out of debt. Unfortunately, a lot of people are unwilling to make the lifestyle changes they need to make in order to reduce debt and increase savings.
According to noted personal finance writer Dave Ramsey, keeping up appearances is one of the most common problems people face. They strive to emulate the lifestyle of those around them and overspend to do so. This often comes at the cost of accruing serious debt. To pay down your balance, you will need to start budgeting and making some lifestyle changes.
- You Must Have a Strict Budget
Budgeting is the key to financial success. Whether you earn $30,000 a year or $300,000, you need a budget to help keep your spending in check. More importantly, you need to carefully follow that budget.
One of the challenges people face with their budgets is making unplanned purchases. Perhaps you want to treat your kids or enjoy a nice dinner out. While each of these expenses may be minor, you may be racking up more costs than you realize.
Create a clear budget for each month. Then, reconcile your expenditures with your planned budget to see where you made missteps.
- Unexpected Expenses Still Happen
You start feeling like you may be on top of this. Your budgeting is working, and you are improving your situation. All of a sudden, your car breaks down and needs a $2,000 repair. This situation is all too familiar to people in debt. Just because you are trying to be better with money doesn’t mean unexpected problems cease.
One of the best strategies for handling this is to establish a savings account with an emergency fund. Although you should be budgeting some of your extra money to pay off debt, it is a good idea to save a little for those unexpected expenses. It could make all the difference when your fridge stops working or your dog eats chocolate.
- You’re Paying Multiple Debts Simultaneously
Are you trying to pay off multiple credit cards, your mortgage and your student loans all at once? While you likely need to make at least minimum payments, you may be hampering yourself by spreading your money around too much.
When you pay more than the minimum payment, you cut down the balance. In turn, this helps reduce future interest. By focusing your efforts primarily on one debt at a time, you will see greater interest reductions and more progress more quickly.
Get the Help You Need
Even when you understand that mistakes you are making, getting out of debt isn’t easy. Sometimes you need some extra help.
Financial Rescue, LLC can give you that help with our debt relief solutions. We will help you settle your debts, cut down the total amount you owe and consolidate your debts into a single low payment. This is your chance to take on your debt and start building your savings. Contact us today to learn more.