Canadian Finance Blog

How to Get Out of Debt When You Can’t Manage Your Money

Posted: 21 Apr 2011 02:00 AM PDT

The biggest cause of debt is not knowing how to manage your money. If you spend more money than you earn, you accrue debt. Student loans, credit cards, car loans, mortgages, and payday loans are all forms of debt. Some are less problematic, but none are good to have. However, getting rid of consumer debt first is most important. If you can manage your money properly, you can avoid going into debt, and you can get rid of the debt you already have.

Manage Your Money

Track Your Spending

The more debt you have, the more you should put aside each month toward payments. Tracking your spending will show you where your money is going. What unnecessary spending is there? Are you wasting money? Track your spending to determine how to set up your budget, and continue tracking your spending to ensure you are staying within your budget.

Pay Off Your Highest Interest Loans First

Make the minimum payments on all your debt every month. This will make sure you don’t damage your credit. After that, focus all excess cash on the debt with the highest interest rate. Usually, that will be credit card debt. Pay off the highest card or loan first to minimize the amount of interest you pay in the long run.

Once the highest rate loan is paid off, focus everything on the next highest loan and so on. As you begin to pay off cards and loans, the amount of money going to each one will grow because you’ll have fewer payments.

Pay Off your Debt Faster

Some people are fine paying the minimum payments each month and maybe a little extra now and then. The problem with this is that it will take a lot longer to pay off, and you’ll pay a lot extra in interest. You are postponing all your financial goals as a result, goals such as saving for retirement, buying a house, and sending your kids to college.

Now is the time to make some sacrifices. Obviously, you’re not good at making financial sacrifices or else you wouldn’t be in debt. Acquiring the self-discipline now will help you now and in the long run.

Downgrade your lifestyle.
Live in a less expensive apartment.
Cut cable television.
Don’t eat out.
Don’t buy new clothes.
Go to the library instead of the bookstore.
Stay home instead of going to the movies or taking a drive.
Use coupons, and cut out junk food.

You don’t have to cut out everything you love to make a bigger dent in your debt. Cut back by half and then adjust it from there. You will soon experience complete debt relief and a sudden influx of extra money each month, money that was once going to debt payments.

Prepare for the Future

Use that extra money to prepare for the future. Save 8 months of living expenses in a high interest savings account. Set up a plan for retirement. Put money aside for big purchases such as electronics or vacations instead of using credit. Pay off your debt and avoid further problems with better money management practices.

Author Bio: Samantha Kay is a regular writer for Debt Consolidation Advice, a debt relief blog. She covers the debt relief industry as a whole and provides helpful advice on debt consolidation, credit counseling and other various money-saving tips.

How to Get Out of Debt When You Can't Manage Your Money originally appeared on Canadian Finance Blog on April 21, 2011.