How To Take Control Of Your Finances And Get Out Of Debt
An average American household has a lot of debt. In addition to the home mortgage, they might have auto loans and credit card debt. But it is not necessary to be this way, and with discipline and change some of your financial habits you can gain back control of your finances and get out of debt.
Try to Downsize
The first thing you need to do when you are in debt is to examine all your expenses. For example, if your family has two cars, try to see if you can do with one car. Getting rid of an extra car will save you at least 500 dollars per month on average and you can use that to pay down your debt. If at all possible, try to see if you can downsize your home. Downsizing your home will not only reduce your mortgage payments but also your property taxes and utility costs.
Track Your Spending
Most people don’t know where their money is going. Even though they earn a good salary, they live paycheck to paycheck. The best way to tackle this problem is to write down every dollar you spend. By writing down everything you spend you will get a clear idea of where your money is going, and it will give you ideas on cutting unnecessary expenses. For example, after tracking your spending habits you might discover that you’re spending 200 dollars per month on buying lunches at work. You could save 2400 after tax dollars by taking your own lunch to work. Tracking your spending is one of the most effective ways to take control of your money. Once you know where your money is going it is almost trivial to optimize your spending patterns.
After you start tracking your expenses and optimizing your spending, you should direct the surplus money towards the credit card debt first. Most credit cards charge interests in the 20% per annum range and getting rid of your credit card debt is very essential to taking control of your finances. Start by paying off the cards with lowest balances first because for every card you pay off you will experience an increase in your confidence.
Once your credit cards are paid off you should turn attention to your auto loans. As mentioned before, try to get rid of your extra cars and try to manage with the least number of cars required for your family. Getting rid of a car will yield you immediate savings which you can direct towards the auto loan that you have. Try to pay more than the required monthly payment as this will accelerate the amortization schedule of your loan and you will pay less interest overall.
Pay Extra towards Your Mortgage
Your home mortgage is likely to be your biggest debt. After you have cleared your other debts turn your attention to your home mortgage. With the home mortgage also try to pay more than the required monthly payment. By doing this, you will accelerate the amortization schedule of your loan and, for example, you could pay off your 30-year mortgage in only 20 years. In the early years of your loan, most of your payments go towards paying the interest; only in the final years of your mortgage do most of the payments go towards the principle. By paying extra every month, you will be paying off more of your principal during the early years which will accelerate the amortization schedule and you overall pay much lesser interest over the life of your loan.
By following the above steps, you will gain back control of your finances. Along with this, you should start an automatic saving plan where a certain percentage of salary is saved automatically. You should also contribute the maximum amount allowed for your 401k contributions both for its tax advantage and to take advantage of your employer match. Find more help and advice at http://www.payrollspecialtiesinc.com.