The following is a guest post from Martha Jackson, a contributing financial writer working for debtconsolidationcare.com. Since I myself have a student loan this article from Martha is about getting out of small consumer debt.
Consumer debt is the debt that results from any money owed due to buying goods or items for personal use. This debt usually arises from credit cards, installment loans and other kinds of financing. They may take up a huge part of your income every month. You can get out of debt problems if you want to enjoy a debt free life.
6 Ways to get out of small consumer debt
Read on to know about the 6 ways how you can get out of small consumer debt.
- Purchase goods with cash – You should try to purchase goods with cash only. Skip the idea of using credit cards since this will lead to increase in debt problems. It is advisable that you need not carry credit cards with you when you go out to buy something. Keep in mind that credit cards should be used only to meet your necessities.
- Make more than minimum payment – You can reduce your credit card debt by making more than the minimum payment. Start with small payment and then try to double your minimum balance to eliminate the credit card bills. As your income increases with time, you should make more than the minimum payments on your credit card dues so as to get rid of them soon. You may use fund from the employment bonuses or income tax returns to come out of consumer debt.
- Request for a decrease in interest rate – You can negotiate with your creditors and request for decreasing the interest rate on your credit card dues. The creditors will assess your credit score at first and then find out if you can qualify for a better interest rate. Thus, the debt payments will become easier for you.
- Look into your personal savings – Managing your money wisely means you will never touch your personal savings at any cost. However, if you are handling high consumer debt and high rate of interest, you may use your savings to wipe away your credit card dues. Once you get rid of credit card bills, you will be able to enjoy being debt free.
- Try to make some sacrifices – You may assess your monthly expenditures and try to cut down the unnecessary expenses to as much as possible. Go through the credit card statements very carefully and calculate how much money you can spend on entertainment, shopping and dining out. Make use of the extra money to pay off your credit card dues.
- Suitable ways to boost your monthly income – If you are finding it difficult to pay down your consumer debt with your monthly income, you may look for suitable ways to improve your earning capacity. Take up some part-time jobs that you can do during your leisure hours and boost your monthly income. Earning extra dollars will enable you to pay down the credit card debts with ease.
By following the above ways, you will be able to get out of consumer debt soon.
You just got paid from your job, and you feel like you can buy anything you want to (within reason.) Within a few days all your money is gone (from buying junk) and now you have to sit bored waiting till the next pay day. But while you had the money you believed that there was more available, then you checked your balance and you have maybe five dollars till you overdraft. I’ve experienced this in my life, even just recently, just not to that extreme of within a few days.
But for me it was a case of buying more then I should have. Coupled with the fact that I went out of county and took my significant other shopping. But I did enjoy that day which more then made up not being able to do anything for about a week. Now if I hadn’t enjoyed myself but instead bills pushed me to the edge then I might have been more upset and angry. Even more important was that I wasn’t stressed out, cause I knew I would be getting paid by the company I own soon.
Now that my (good) experience being short term broke is over I do have to look at it through someone else’s eyes, someone who was broke cause of expenses or from overspending on material things with no pay in sight. I would have freaked out and been stressed.
No buffer – This would have been the biggest issue, cause if any unexpected expenses came up (think car being towed) then I would have been worried. Which would have been way out of my comfort zone.
Debt Cycle - I call this where you get in debt to hold yourself over till the next payday, only to pay back the debt and be broke again. Think about it, if you use your credit card to pay all your bills then as soon as you get paid you pay off the credit card. If your not careful you could be broke again since you “lived” off of the credit card, which would start a bad cycle that would be hard to break.
Couldn’t Go Out - This affected my significant other more then me. With no money to freely spend we wasn’t able to get out and I had to remind myself I can’t spend. I ended up putting the debit card inside a drawer until I paid myself. I knew if I went out and just charged the amount I risked placing myself in the Debt Cycle, which I wanted to avoid.
These are the big three for myself that being broke would have limited.
P.S. Happy Fourth of July and try to stay out of debt during this Holiday Season.
In Ideas for Staying out of Debt I plan to cover my ideas/plans on how to stay out of debt.
This is one area I can speak about from experience. When I first started my business I made less then $1,000 the first year. I had no ads, no car, and I wasn’t sure if I wanted to do it. My primary income at the time was helping out at the family business, a steel yard and a farm. Over time I got my business built up till last year my business out earned the family business and I haven’t looked back.
Now, if you are in debt right now the extra income from a side business or just working longer could be used to pay it down quicker. Or you could use it to build up your savings. This way you will have more income to work with. Think about it, your in risk of going into debt with your current job. By adding an extra $100-$300 a month of income could mean the difference between scraping by or ringing up debt.
For short term debt such as a personal or payday loan then selling items you no longer use on eBay could help. Just make sure you properly describe the object and take real pictures, the buyer would want to see what it really looks like. But for the long term debt you would be better off ether working more hours (if possible) or even starting a side business. I started my business on the side and eventually now it’s my only source of income, after about 3-4 years.
No matter what option you pick, make sure you actually use the extra money to pay down debt. Once you are debt free, then you can splurge a bit, or save it up. Just make sure if you don’t already have an Emergency Fund, to set that up with the extra income first. After all, you want to make sure a bad tire doesn’t wipe out the extra bit you just paid down.
- Emergency Fund – As I said earlier I have yet to start back on saving in my Emergency Fund. It currently sits at five dollars.
- Taxes – I just recently paid Estimated taxes to the tune of 450, with about another hundred still in the account. Only time will tell if this was enough.
- Slush Fund – Need to set this up. By next quarter I hope to have an account established.
- Place to live – here’s the really dumb part on my move. I have 3,750 but it’s mostly from Student Aid that I have managed not to spend.
- Student Loans – The original loan was for $5,500. The current principal is $5,299.77. Which mean $200 is paid off of the $750 goal. The only bad part is I have about $60 in interest that I have not paid yet.
- Credit Card – I only have a $200 credit limit and my last bill was for $0 and currently I only have a $3 balance from Saturday. So on using it less I am making progress.
- My business which is Computer Repair and Programming seams to be on track. After doing the quarterly book work it’s at $4,505.67. Which my goal is $20,000. So it’s almost a quarter of what I expected. Yet the last two/three weeks have been slow and may explain why it’s not $5,000. But I can live with that.
- Passive Income – Have yet to establish any, I have been reading blogs, books, and listening to shows on that topic. Lets see if I can get this going soon.
Noticeable Quarter Events
This quarter has been an interesting one. First time I’ve installed a security camera system, which was a good learning experience. Always wear dust masks when working with ceilings and walls. But onto some bad events. The beginning of March there was a bad storm which busted out three windows on my Ford Explorer. The repair bill was around $700 but my parents chipped in, which helped a lot. Had my parents not chipped in and with virtually no Emergency Fund this could have been much worst.
Now you may be asking me, where’s the expenses? I haven’t had much time to analyse my expenses yet but I can say more was spent on my Explorer then any other category. I will make a new post when I’ve done that.
And as always, feel free to comment below. I want to hear your comments and suggestions. If you like this post make sure to subscribe to the feed at the bottom of the site. Thanks and I hope to hear from you soon.
Also, on a side note, today I’m 19. With the extra money from gifts I hope to not blow them. I would really like to pay off some debt and/or save but I need to at least make sure I don’t blow it on food and stuff I never use. Finally I am expecting a slight increase in one of my Subcontracting Job and I plan on using half of the excess to pay debt and the other half to fund savings. Which should amount to about $50 for each category per month.
By the title of this blog many would get the impression that I don’t support mortgages. I do understand that they may be necessary. I have two different view points on this topics
View 1 – Take a Mortgage
This is the more traditional option. You generally pay a down payment of 20% and the rest is paid over 30 years. The only issue with this option is the amount of interest paid.
A $100,000 with a down payment of $20,000 would leave an $80,000 loan. At a 5% rate the amount of interest paid over the life of the loan would be around $74,600 according to mortgage-x.com. So now the house has costed around $174,600, in addition to the fees and charges of getting a loan.
View 2 – Save and pay cash starting small
To really stay out of debt you should start small. Where I live there are some fixer-uppers that are $20,000. Instead of having a down payment you own the house. During this time the payments you would have paid (about $400) could be put in savings. After five years you would have $24,000 in savings. If your house didn’t loose much value you could now upgrade to a $40,000 house, assuming you wanted to. Another five years and the same story, now we are up to over a $65,000 house. You can see where I’m going. About seventeen years after buying the fixer-upper you can now have the $100,000 house without a loan.
Positives and Negatives of each
- Start out in house you want
- Take interest deduction on taxes
- Pay out almost as much in interest as the loan amount
- Paying bank for 30 years
- Could become upside down on mortgage
- You own house outright
- No interest paid, you get interest from the saving account
- You don’t start in your dream house
- The value of the “step houses” could tank
This is over simplified but the big issue with View 1 is the interest paid and the big issue with View 2 is the value of the houses you buy in between the two could tank. One Potential solution is to stay in the starter home, so there isn’t to much to loose.
While other people may chose renting, it is a personal choice. While I cannot blame someone for picking View 1, I am going to try View 2. I would like to know your personal opinion. Which view would you prefer, or would you rent?