Life is good in one of the wealthiest countries on earth, yet Americans are feeling the personal financial pinch: with $14 trillion in debt and climbing, consumers face an increased likelihood of taking on more debt to meet the expense of everyday basic needs. The lack of financial safe space means almost half of Americans have less than $1,000 in savings; that's the slim hedge between survival, tough times, and disaster when faced with the unexpected. These instances could include a trip to a hospital ER, car repairs, or a major dental bill. So how can you manage debt?
Admit there's a problem
Some people prefer to refer to a "spending problem." If you spend more than you earn, or cannot pay off your debt each month, it's well past a just a spending problem. It could be an addiction to shopping, or not paying attention to what's going out of your bank account, but either way, it's now a debt problem. And debt costs more than just what you spend; typical credit card interest rates run between 19% and 30%. You're paying your own money to spend your own money, and that's costing you the money you could be saving for a new home, retirement or vacation. Once you admit this, you are one step closer to manage debt and get your life back on track.
You need to discuss budgeting and how much each of you makes. If you already have a retirement plan, you may need to discuss whose plan to keep. There's also the possibility of combining plans. At this stage, it's essential to be honest with your partner.
Get your goals in order
What's your life plan and where does money fit into it? Do you want to retire before you qualify for your pension or Social Security, based on your age? Do you want to have more money to live on than just your pension? Will you help your children financially in college and beyond? Does a life of leisure, travel and giving to the next generation appeal to you, or does working into old age sound inevitable? Your life goals will change over time, but saving for the future should remain in place.
List your assets
Write down what you own and its value, using the current and reasonable fair market value, which you can find using websites featuring listings of similar assets. Items to include are your home, car, other real property such as land or buildings you own outright or as a shared investment, stocks, retirement plan accounts, and tax-free savings accounts. Know the current amount in your bank accounts. If you own a collection of jewelry or artwork, contact an expert and get a current estimate of the collection's value, for insurance purposes and any future sale of the items.
List your income and expenses
Include all sources of income: your regular paycheck and any payments you receive: minor child or spousal support, interest, and monetary gifts from family. List all your expenses, from rent or mortgage to that daily coffee run, and this includes automatic withdrawals for online bill paying. The only way to see where your money is going is to create a realistic and truthful visual presentation, whether on paper or digital and track your incoming and outgoing money every month in order to gain control.
Bring a budget to the table
Establishing a budget is the best way to manage debt. Do it on a legal pad or use an online spreadsheet or budgeting software tool; no matter the method, create a budget you can live with while paying down debt. Your budget takes care of your basic living expenses and debt repayments first, while putting money aside for retirement and other long-term needs (college, homeownership, vacations, new car) and never forget to pay yourself, too. A budget isn't punishment or denial; it's a deal that allows you to live within your means while splurging a bit on what you enjoy. It shows you how to save where you can (reducing the number of meals out, coffee drinks and retail "therapy sessions") in exchange for a long-awaited vacation or much-needed and well-appointed car.
Make extra money (or don't spend the extra you have)
Any extra money saved at the end of the money is money made for reducing your debt. And if you're running low on cash regularly, consider a garage or online sale of stuff you no longer need sitting in your attic, basement, closets, and drawers. Work overtime, a part-time or temporary job to add cash to your bank account. If free time is short or irregular, consider working from home in the evening, at night or on weekends, or sign up on odd job websites where you can take employment on your schedule.
Pay with cash; cut yourself off from credit cards
Cash is more than the king; it's the supreme leader of financial leverage. Paying cash can get you discounts on everything from car care to daycare. Repairs on everything you own can cost less when you offer cash. Keeping a credit card handy is sound money, as long as you use it judiciously and pay off the entire balance on time every month.
Bargain and negotiate your way to lower payments
If you think you're paying too much for cable TV, Internet, phone, auto insurance or any other personal services, you could be right. Call the provider and ask for a better rate. If you're a long-time customer, remind the provider of that fact, and that you deserve whatever great introductory rate offered to new customers. Know your options before you call, and be prepared to change providers if you're not satisfied.
Know the difference between wants and needs
When you decide to manage debt, you need to recognize your wants vs. your needs. Needs are the basics that keep life going: food, clothing, shelter, and transportation to work so you can take care of the other basic needs with a paycheck. Everything else falls into the category of wants. Step back from temptation, take a breath and consider if that newest smartphone, tablet or slick pair of sneakers add anything crucial to your life, or you want it because it's new, nice and the advertising says you're not cool without it.
You and your partner can enjoy financial success. You need to be willing to talk about money matter honestly and openly. It's always beneficial to set realistic goals and access them frequently.