Level 2

Debt management



Sorry to hear you are barely living month to month. Sadly, you are not alone. Statistically, 70% of Americans are in the same boat.  The good news is, you can change this. It is never to late to change or start something new. You can do it!


I don't know what age you are or anything else about your financial situation, but the same rules apply to you as to anyone else. One or both of two things must happen to accomplish your goal of saving for emergencies and savings in general, and paying off debt. 


Expenses must be cut. Income must increase.


Again, I do not know anything about your financial situation, but those two things apply across the board in general.  Here are some suggestions and while they may seem obvious, they bear being said:


Do you use credit cards? If so, I recommend you stop and pay cash for what you buy.

Do you have car payments you cannot afford? You may need to get rid of a car.

Is your mortgage and property tax or rent greater than 30% of your take home pay? Least desirable, but you may need to move

Do you dine out frequently or cook most of your meals at home?  Cooking at home is always cheaper

Do you impulse buy or buy things you want but don't need?  This will kill your ability to save as you want


Are you on a budget? Do you create a written (or electronic) budget every month before the beginning of the month where income minus expenses = zero? This is called a zero based budget. Your budget must balance at exactly zero.  This does not mean zero dollars in the bank. It means income and expenses match exactly. Trim all unnecessary expenses. What is necessary may be up for debate, but generally speaking the only things we need are shelter and utilities, food, basic clothing, and transportation.  I call these the four walls. Always make these your first priority in your budget. Always. Prioritize from there. 


Second, as quick as you can save $1000 for an emergency starter fund. Sell stuff you don't need, work a part-time job.


Third, list your debts least to greatest without regard to interest rate.  Take all available money from your streamlined budget and throw it at the smallest debt to pay it off while making minimum payments on the other debt.  When the first debt is paid, move to the second debt and throw all money at that debt while making minimum payments on the others. This is a debt snowball and will gain momentum as it rolls downhill. The psychological value of paying off debt will encourage you to push forward! 


The above works. I know because I've done it. Not saying it is easy, but if you are willing to make some sacrifices - most people do to accomplish their goals - you can do this!