Has last Christmas left you with a string of bills you’re still struggling to pay? Perhaps you exceeded your usual monthly budget? It’s easy to do. Those extra gifts, outings and events all add up. It’s likely you charged a significant portion of these Christmas spends to your credit card – and swore to yourself that you’d handle it in January…
If you buried your head in the sand – it’s time to deal with your bills. But, where should you start? We give some practical, straightforward advice below to help you get your finances back on track.
Use a low-interest transfer card to pay off your debt
Credit card debt is depressing. The average interest rate is a whopping 19.99%, and this can rapidly increase your balance by hundreds or even thousands of dollars if you’re not careful.
It makes sense to move your debt to a low-interest credit card if it’s not feasible to pay it off within a couple of months. The MBNA Platinum Plus Mastercard has zero interest during the first twelve months.
Banks usually have a small charge for balance transfers. To work out whether a balance transfer card is right for you, compare that charge with the amount that you would have paid in interest if you’d kept your original credit card.
You should always have a good grasp of your financial position. You can plan better when you have a clear understanding of the amount of funds you have, the amount you’re earning, and the cost of running your life on a day-to-day basis.
Financial health starts with knowing yourself. You can quickly develop this understanding by getting into the habit of tracking your expenditure.
Fudget, Mint, Daily Budget, Every Dollar and Honeydue are some of the more popular budgeting apps. They can help you track your finances. But, they aren’t for everybody.
An alternative method is to budget using a basic Excel spreadsheet. Look through your bank information, and manually input all your income and spending. This manual process may sound laborious, but it only takes a few minutes each day. The action of adding up the figures and inputting them yourself keeps you mindful.
Make cut-backs to help with your credit card debt
When you’ve tracked your expenditure for a while, patterns will soon start to emerge. Maybe you hire Ubers four nights a week, despite paying for a public transit pass each month? Or, perhaps you order carryouts at work?
When you know where your cash is going, you can start to cut things out. Quit spending money on items that don’t improve your life significantly.
Search through the subscription memberships and services that you pay for, and cancel the ones you don’t use.
Haven’t worked out in three months, but still pay a monthly fee for a local gym? Terminate your membership. Prefer HBO Go, but still paying for Netflix? Ditch it.
But. don’t ditch your most treasured pursuits. If you look forward to buying coffee every morning – don’t nix this from your budget
You should be honest with yourself if you’re going to cut items from your budget. It might appear sensible to stop purchasing coffee every morning and start brewing your own – and many budgeting and personal finance articles suggest it. But it’s not realistic to cut out a daily ritual that you enjoy, just because others believe it’s wasteful.
Come up with a budget, and stick with it
You construct a monthly budget once you have a good idea of what you’re spending money on, and an accurate picture of where you want to end up.
Each budget will be slightly different. It’s useful to split your funds into three groups:
- Fixed expenses (stuff you pay for every month, such as insurance, food, rent, debt payments, gasoline, public transit passes and transfers to your savings account),
- Variable expenses (items you may have to spend on sporadically, such as airline tickets).
Weigh your income against your costs, and fine-tune it to make them balance out. Always put aside a quantity of cash for fun (when you’re deciding on the amount – be practical and don’t punish yourself!) – and try your very best to stay within that limit.