When the Great Recession hit the United States in 2008 many average Americans began to have financial troubles. The stock market dropped like a rock and the government rushed to bailout large corporations who had more debt than they could handle. Unfortunately there weren’t any bailouts for the average American. As our pay decreased and our assets shrunk many of us had to rely on credit to make ends meet. Working in the finance department of a Fortune 500 company I have seen the impact of the recession on a corporate level and I have felt the impact on a personal level.
Debt can be a heavy burden to carry and getting out from under debt can be an arduous task. The truth of the matter is, just like many things in life, there isn’t a quick fix to getting out of debt. The trick is to develop a plan and stick to your plan. The following are some common sense suggestions for steps to take to start the climb out from under debt:
Set a budget
The first step should always be to set a realistic budget. Start by listing out all of your fixed monthly costs such as rent/mortgage, debt payments, car payment, etc… Next budget a realistic amount for variable costs such as food, gas, etc… Be sure not to underestimate for these costs. Finally set aside a monthly amount for unexpected costs, at least $100 per month. Once you calculated your monthly expenses then deduct that amount from your monthly income.
If your monthly income does exceed your expenses then plan on taking that excess income every month and applying it towards your debts. Start with the debts that have the highest interest rates. If you consistently pay more than the minimum payment required you will be surprised how quickly you can start to make some headway on your debt.
If your monthly income is less than your expenses then it’s time for some hard decisions. Review what you are spending your money on. Are there area’s where you can save? Cable TV and cell phone service are just some of the luxuries that you may need to consider cutting back.
Once you set a realistic budget then do everything you can to stick to that budget. Your budget is the backbone of your plan to get out of debt and if you continually blow your budget you’ll never see the light at the end of the tunnel.
Set aside a “rainy day” fund
If you are living paycheck to paycheck one of the biggest obstacles to getting out from under debt are the large unexpected expenses. An unexpected $500 car repair that has to be put on a credit card can easily wipe away a couple months of progress. One of the best ways to avoid this is to put some money in your savings account as a “rainy day” fund. The next time you get a sum of money (tax return, bonus at work, etc…) don’t be so quick to run out and spend that money. Set the money aside to cover the unexpected expenses in life. If you do have to dip into this fund then make sure you stick to your budget and do what you can to replenish these funds.
Don’t be afraid of coupons and online offers
How often have you been to the grocery store and seen someone buy a cart full of groceries without using a single coupon? That’s like giving away free money. Search your local newspaper for weekly coupons and search the internet for coupons and other incentives. If you are living paycheck to paycheck then you can’t afford to pass up deals like this. It may not seem like much at the time, but saving just $10 per week by using coupons adds up to $520 per year.
The bottom line is that there isn’t an easy solution to a debt problem unless you win the lottery or inherit a large sum of money. However, it doesn’t have to be a hopeless situation. Stick to a budget, use some common sense and you’ll be surprised at the progress you can make.