There are as many ways to fall into debt as there are people on the globe. While some major debt burdens are created by life events, most people simply spend more money than they make each month. Gaining control over spending habits will provide more positive progress to becoming debt free than adding more household income. Discipline is required as spending and saving habits are changed, but the rewards are immeasurable.
Assess Current Financial Picture
Before anyone can make the necessary changes to reduce their debt, the current monthly expenses must be listed in major categories. Mark every expense that cannot be changed such as the mortgage or rent. Make this a family project so that everyone knows changes are coming in the near future. Listing the expenses is the first step and should be completed with all necessary detail. Even if the major debt burden is made up of medical bills or repair bills, the rest of the monthly expenses must be listed to find areas that can be reduced.
Find all receipts that contain information concerning every purchase in the past year. Draw up a chart of the past twelve months and the total expenses from each month. Write the amount of income that is associated with each month. Subtract the expenses from the income and see if the amount is consistently negative. Debt often accumulates when the household consistently spends more each month than can be covered by the income. The negative number will reveal how much money must be removed from the monthly expenditures.
Create a New Plan
To solve your debt problems, you must operate according to a written budget. Write down the major categories, including: housing, food, and transportation. This simple step is the beginning of your personal budget. There are countless books that can show you how to create elaborate budgets, but the most important task right now is to figure out how to reduce monthly expenses. Write down the average amounts under the correct category. Remember to include payments that happen quarterly and annually.
Make a list of all the outstanding debts that require a monthly payment. Evaluate the item and determine if it can be sold to eliminate the expense. A boat can be sold more easily than the family car that carries a loan payment. Once the debt crisis is over, another boat can be purchased so determine to make the hard choices now.
Prior to adding a second full-time income, perform the detailed calculations of the expense associated with two cars, a new wardrobe, childcare, and additional taxes. Another way to increase the household income is to sell some unused items. Consistent effort invested in selling what is no longer needed can increase the income by enough to offset one monthly payment. Small amounts add up quickly on both sides of the balance sheet.
Change Spending Habits
Make the phone calls necessary to cancel luxuries that the family has determined can be omitted for now. Maybe the cable service can be suspended for six months. Commit to eat all meals at home and carry lunches until the debt load is reduced. Ask each family member to reduce their own expenses to help the overall budget. Apply the money to the debt payments in order of highest to lowest interest rate.
Perform plastic surgery and destroy every credit card including the store cards. This may seem drastic, but anyone serious about living a debt-free life must learn how easily those cards can be used to accumulate debt. All debt-based expenditures must cease until the household is operating without carrying any debt with the exception of the mortgage payment.
Use cash for every purchase and track every cup of coffee or trip through the fast food drive-thru window. Seriously evaluate the last time you went an entire day without spending a dime. When the car needs gasoline, stop and think before purchasing a soda. When going to the ATM for cash, make sure you are using an ATM associated with your account so you do not pay a fee. When the cash is gone, you are finished spending until a new budget period starts. You may have to budget the cash for one week instead of a month.
Conclusion
The debt load was accumulated over time, and getting out of credit card debt or any of your debts will take time as well. One of the best ways to stay on track is to set up a reward system as each debt is paid off. When the first one is paid off, have a pizza and family game night. After paying off the second major debt, spend an entire day on a fun family venture to the amusement park. Once the goal is reached, take the family on a well-deserved vacation.
As time moves forward remember to maintain the new habits and live within the budget. Even when the debt is gone, the budget must be maintained to prevent sliding back into a habit of overspending. The road from the current situation to complete debt elimination may feel long and dark, but the rewards for the entire family cannot be overstated. When kids work with their parents to manage the household budget, positive lifelong spending habits are developed that will prevent them from ever falling into debt.
