If you are in a bad financial situation, and here are ten things that could do to 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.”
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 decide to do something about it consciously. Arm yourself with knowledge about money, so that you can learn to master it. There are a lot of good books, blogs, and websites 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 high — it is so convenient. A good way to stop yourself from using them is not to carry them around. Carry only 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 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? You do not want to be surprised by a higher rate three months down the road.
While you are going through this phone exercise, make a list of all your credit cards. For each writes 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 reasonable, 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 the highest interest rate using your money, or money you borrowed; while paying the minimum on all other cards
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 one month and see what happens. If you still want it then, maybe it is worth your money.
Check out “Save Up to Buy Things” and “The 30-Day Rule” money hacks to help you manage your spending.
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 a 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 could not 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 a 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 — 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. 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 have been 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 one year, you will have your first $1,000 of Emergency Fund.
Instead of the mattress, you can do even better by putting your money in a high yield savings account or a money market fund. Just make sure you can quickly get to it in case of an emergency.
8. 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. Maybe 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.
9. Play the Expense Reduction Game
Here are 40+ ways to save money. How about turning this into a game with your family and see how many of these you can do? And bonus points for doing things that you come up on your own.
10. Start a Side Hustle
While cutting expenses and pay down your debt is a good start, there is only so much you can do here. To get out of your financial mess faster, try making more money. Here are 40+ extra income ideas and ways to make money. See how many of these you can do.
I hope that you find these steps helpful, simple, and straightforward.
Pinyo Bhulipongsanon is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.