If you are in debt you are not alone. But just because you are caught in the debt cycle now doesn’t mean you have to stay stuck in it forever. Your spending habits have a huge impact on your amount of debt. A few positive changes can make all the difference.
PAY WITH CASH, NOT CREDIT. This sounds so simple, but how many of us do it? Paying for things months or even years after you have bought them is a sure way to keep you in debt for longer than necessary.
The True Cost of Credit:
- Imagine you purchase a $2,000 flat-screen TV using a credit card.
- Your monthly payment, 2% of debt balance, would be $40.
- At 18% interest only $10 would go towards the amount owed. The remaining $30 going towards interest.
With minimum balance payments:
- It will take you over 30 years to pay off your TV.
- You will have paid nearly $5,000 in interest.
- Your $2,000 TV will have actually cost you nearly $7,000.
DEVELOP A BUDGET TO KNOW WHAT YOU CAN SPEND. It is not rocket science. Just a list of all the fixed expenditures you have each month, total it and subtract the total from your monthly income. The amount you have left is your “disposable income,” meaning the amount you can use for other spending.
PAY YOURSELF FIRST. Start a “rainy day” fund for unexpected emergencies. They always crop up: car repairs, doctor visits, appliance repair or replacement. Having an emergency fund will keep you from having to use credit.
DON’T BUY ON IMPULSE OR EMOTION. Let’s face it; buying stuff is fun. But purchasing items you don’t need or haven’t budgeted for can keep you in the debt trap forever. Treat yourself to the things you really want, but do it in a smart way. Save up for it week by week and month by month until you can pay for it without using credit.
Source: Susan Jackson, K-State Research and Extension, County Extension Agent, Family and Consumer Science
