10 Steps to Fix Your Money Problems

If you are in a bad financial situation, and here are 10 things that could help you toward recovery. These steps will put you back on track, but the journey will be long. But as Confucius said “A journey of a thousand miles begins with a single step.”

baby steps
Photo by billerr via Flickr

1. Empower Yourself

The first and the hardest thing to do is recognize that you are in a bad financial situation and you have to consciously decide to do something about it. Arm yourself with knowledge about money, so that you can learn to master it. There are a lot of good books, blogs, and web sites that you can peruse to build your knowledge. I recommend this short article on wealth building.

2. Stop Carrying Credit Cards

Sometimes the temptation to use these plastic cards is just too great — it is so convenient, isn’t it? A good way to stop yourself from using them is not to carry them around. Carry just enough cash for whatever you have planned for the day. This will force you to think about your spending habits, and prevent you from buying on impulse. If you manage to clear your credit card debt, you can reward yourself by keeping one in your wallet for emergencies.

3. Consolidate Your and Pay Down Your Debt

If you owe money on several credit cards, it is time to make phone calls. Call your credit card companies and ask them to lower the interest rate. If the customer service representative refuses, hang up and call back again — another person may be more helpful.

While on the phone, ask if they would offer you a better interest rate and waive fees if you transfer all your credit card balances to them. Do not forget to review the fine print carefully — e.g., how long does this better rate last? What is the catch?, etc. You do not want to be surprise by a higher rate 3 months down the road.

While you are going through this phone exercise, make a list of all your credit cards. For each write down the current balance, interest rate, negotiated interest rate, balance transfer fee, and any other note. You will want to come back to this later.

Lastly, ask your Credit Union or local bank to see if they would offer you a personal loan. If the rate is good, you can use this money to pay off balances on credit cards with higher interest rates.

Once you have your list, you can do the following:

  • Transfer balances from high interest to low interest cards
  • Pay off the balance with highest interest rate using your money, or money you borrowed; while paying the minimum on all other cards

Dave Ramsey coins the term Debt Snowball and here is a good write up on this method.

Remember, to put your credit cards away until you wipe off your debt.

4. Hit the Pause Button on Spending

Only buy the minimum you need to survive — e.g., food, medicine, rent (for shelter), etc. — and do not stock up. That means no Costco and BJ for you. Also, opt for less expensive items over more expensive ones, and buy used instead of new when you can. For electronics, always wait until the first price cut before you buy.

For all other stuff, do not buy anything the moment you want it, wait 1 month and see what happens. If you still want it then, may be it is worth your money.

5. Always Have a Shopping List Handy

I cannot tell you how many times I go to the store to buy one thing and come back with whole bunch of stuff I did not plan to buy. Always make a shopping list before you go to the store, and do not be tempted while you are there. I usually walk straight to the items that I want and go through my list as fast as I can. My theory is if I did not put it on my list, it cannot be that important.

If you do this, you can save a decent amount of money each week.

6. Spend Your Free Time Away from the Mall

I know it is nice and cool at the mall. You get to look at other people, and play with all the cool toys at Brookstone and Sharper Image. But spending your free time at the mall is a terrible way to get out of financial problem. Instead, spend your time on other activities. Some of my favorites are walking in the park, riding my bicycle, reading books, working on my blog, reading stuff on the Net, watching television and old DVDs, just to name a few.

A good example of this mantra is my dad. He spends most of his free time in his garden. We have string beans, hot peppers, bitter melons, and mints growing in our front yard. Instead of going to the local store, we can go to the yard and get them. How cool is that?

7. Start Contributing 5% to Your 401(k)

While you are fixing up your issues, do not forget about your future. If you never contribute to 401k before, do it now. Put away at least 5% initially and try to increase it by at least 1% (of your pay) each year. If your employer provides matching contribution, that’s even better.

A slightly harder option (because it is not automatic) is to save a small amount each week and put it into your IRA.

8. Save $20 a Week for Rainy Day

Even if you are tempted to use every last dollar to pay off your debt (that is what you are doing right?), you should pull out $20 each week. Keep this under the mattress if you must. Wherever you keep it, do not use the money once you saved it. After 1 year, you will have your first $1,000 of emergency fund.

Instead of the mattress, you can do even better by putting this in a high yield savings account or a money market fund. Just make sure you can easily get to it in case of an emergency.

9. Update Your Resume and Post It on the Web

When was the last time you ask for a raise or go for a promotion? When was the last time you update your resume? The time is NOW. Update your resume and post it on job search sites. While you are there, look around and see what employers are looking for. May be it is time to update your knowledge and skills.

As you put yourself out there, do not forget to approach your boss and ask for a raise.

10. Play the Expense Reduction Game

Here is 101 ways to put $101 in your pocket this month from Blogging Away Deb, and here is a small collection of money saving tips. How about a game with your family and friends to see how many ideas you can come up with?

I hope that you find these steps helpful, simple, and straightforward.

About the Author

By , on Aug 10, 2013
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

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Leave Your Comment (7 Comments)

  1. lost and alone says:

    Once you are in over your head though, there doesn’t seem to be a way out. If you couldn’t pay the minimum payments to begin with, how can you negotiate with multiple companies so that you can EVER get your debt repaid? I, personally, have given up. If they take me to court, they take me. I can’t pay my health insurance and the credit cards too and my health insurance has gone up by OVER $100.00 EVERY YEAR for the past five years. I don’t see a way out.

    • Pinyo says:

      @lost and alone – I am sorry to hear that. But that’s how you begin the negotiation process. Creditors would rather collect a little bit as opposed to taking you to court or have you declare bankruptcy. You never know for sure that the answer is until you ask. And if you get someone nasty on the other end of the line, be ready to hang up and call again to get a different person. Good luck.

  2. Doctor S says:

    #1 is the most important. Some people (Like myself) can just be too stubborn to admit that they even have the slightest problem. Finding your own personal drawbacks and weaknesses is the first step to finding solutions.

    Credit cards are the devil, cutting them up is the answer, but extreme. I prefer to consolidating many cards into one and only carrying one that benefits you. Making the credit card work for you as long as you are handling your obligation in paying it off appropriately. If you can not handle that much, cut the plastic up ASAP!

  3. Jerry says:

    We’ve kept our credit cards open but we don’t use them. We may close some of them but have kept them all. It’s been good for our credit so far. But, your good credit is your only insurance in this economy. Things are looking so grim that we need to do all we can to save and stay afloat until things get better. All this doom also leads me to watch less news. It helps me to keep a cheerier perspective.

  4. SavvyMoney says:

    Don’t you think the best way to kill the credit cards is to cut them all up, yet leave accounts open? That way you remove the temptation to use them, whilst benefiting from a current credit history.

  5. Jonathan says:

    Pinyo I totally agree with your points, they are excellent. I definitely agree that step 1 is the hardest as many of us are more than happy to ignore the problem or even refuse that there is an issue in the first place. The sooner you recognize but also accept that there is a problem the sooner you begin to change your circumstances now matter how bad they are. I’ve also written a similar article on this area entitled “A Step by Step Guide to Get Out Of Debt”.

    This is based upon my experiences of working with people with significant debt issues at all levels of society. Keep writing these great posts Pinyo.

  6. Lauren says:

    These are very true and I’d say #2 is a key step. Cutting them up is a great way to go because if nothing else it leaves an invaluable imprint on your mind of the change that is taking place.

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