Although almost everyone struggles with money at one time or another, the degree to which you struggle can vary a lot. In some cases, you might need to sacrifice more to ensure a better future. In others, it may be a sign you need to take a step back and reconsider your spending. Here are some of the warning signs your financial future is going in the wrong direction.
1) Your Savings are Zero
No matter how much you plan, the unexpected will happen. But a life with no savings means that when the worst does come around, you either can’t pay or must go much further into debt. Without an emergency fund even the smallest bump becomes a major mountain. It’s always a good idea to leave yourself a little savings cushion for emergencies.
2) Your Interest Payments are more than Your Principal
If all of your money is going toward interest-only payments, you are in a no-win situation. This can get out of hand very quickly since your payments are not reducing the amount you owe. Then when those interest only payments switch over to add principal to them your payments increase dramatically.
3) You’re Making Minimum Payments on Everything
If your money is all going to pay off minimums, you have twenty years or more of bill paying before you see relief. This situation never changes your debt, as interest is basically the toll you pay for debt in the first place. See if you can find a way to lower your debts or consolidate them so they become easier to pay.
There are two schools of thought regarding the solution to this problem: The first suggests that you pay off the one with the highest interest rate first putting every spare penny toward reducing this debt. This makes sense because it is the debt costing you the most in interest.
The second method says to pay off the smallest debt first and then use the money you used to spend paying off the first one to pay off the second smallest and so on. This works because your debt payoff snowballs and it becomes easier and easier to pay off your debts. Plus you get the satisfaction of seeing your debt paid off which motivates you to work harder at the rest of them.
The good news is that once most people put their minds to it and really try one of these methods, it only takes 2-3 years to pay off all their debt (excluding the mortgage). And once that debt is no longer hanging over their heads life gets a lot better simply because that stress is removed.
What Can I Do?
If you find you are really struggling financially, there are several things you can do.
- First, take a good look at your spending and cut most of the non-essentials. Leave yourself enough of a break here so you don’t become tempted to binge-shop. Use cash when spending on entertainment and non-essentials to keep from overspending.
- Second, work on setting aside a financial cushion so you can deal with emergencies when they come up. Often, a thousand dollars is enough to get you through your problems while you’re righting your financial ship.
- Third, use any extra monthly money to pay down your debts one by one. Using one of the two above methods.
- Fourth, try and get a reduction in interest rates. If you have a mortgage with a high interest rate, then you should refinance. For veterans you can find VA Streamline Refinance options with low VA rates. If your credit is bad, then work on reducing these other debts to try and up your credit score before you try again. Often, you can get a debt consolidation loan that will take some of the pressure off of you, and help you to pay things down more quickly.
- Finally, stick to your financial plan, and as things get better, start a bigger savings and investing program to keep from having this happen to you again.
Money problems are often difficult to work through. And, if you’re not prepared to make some changes and look critically at your budget, you could be in for a long ride. But if you focus on finding a solution and are willing to change you money problems will fade away. Use these tips to find your weak areas and use your knowledge to improve your overall finances.
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