Too many households are struggling to pay off loans. Every month presents new challenges that cause the money manager to react instead of plan and respond. Existing debts can be repaid without unnecessary stress if some basic steps are followed. The relief felt when the pay off process is completed will be incentive enough to never borrow money again.
Evaluate the Household Budget
A constant cycle of overspending and debt can be stopped with the creation of a household budget. This daunting task is not difficult if the entire family will participate. Money management is easier when everyone supports the person responsible for managing the family’s money. Gather the past six months of bills, bank statements and receipts before attempting this process.
- Actual bills – A budget is built from the previous six months of actual expenses. Few people know where every dollar has been spent. Control over the money is essential in the effort to pay off loans. Each bill will become a category on the basic budget. Rent, food and utilities consume the bulk of the household income.
- Cut extras – Household priorities will determine which services should be eliminated to find extra cash for the loan pay off project. Every non-essential expense is a candidate for savings. Replace eating out with more family time as everyone participates in meal planning and preparation. Embrace free entertainment sources that enhance family outings and game nights.
- Find additional income – Most families have more belongings than can be used on a consistent basis. List some free online classified ads, sell extra stuff and use the cash to fund the loan pay off project. Set aside some of the extra cash to reward the family for supporting the effort. Other sources of extra cash include odd jobs, babysitting and Internet work.
Devise a Strategy
Too many small debt payments will delay progress in the quest to pay off loans. A money manager can feel overwhelmed if realistic options are not apparent. The primary goal is to reduce the debt load and live within the household income. Gather the existing debt documents prior to starting this step.
Prioritize the debts – The highest interest loans should be repaid first. As one loan is repaid, the money used to make the monthly payment would be added to the next loan on the list. This process will accelerate the debt repayment effort over time.
Debt consolidation – Credit counseling and debt consolidation work together and allow the consumer to repay large amounts of debt according to a set schedule. Significant research is required to find a reputable credit counseling agency in the state of residence. Consistent monthly payments are required to repay all debts. Direct contact with each creditor can produce similar results if the program seems daunting.
Refinance the house – Homeowners have the option to refinance and existing home loan to use the equity to repay other debts. This method is helpful if the money manager is able to constrain additional spending and change money management habits. The monthly house payment will increase, which can cause budget strains if the budget is not in place.
Payday payments – Multiple payments within the month can make large payments easier to make. The money manager can arrange for special payment schedules with each creditor if this approach is easier. Biweekly paychecks can result in two extra payments each year, which shortens the repayment period.
Bankruptcy – Under certain circumstances, the debt load can be insurmountable. Complete loss of income can pose a threat to the family’s ability to survive financially. Advice from multiple sources must precede the decision to file for bankruptcy. The courts do not allow people to walk away from obligations if the ability to repay the debts exists.
Refuse to Use Credit
Embracing an effort to pay off debts must be accompanied with an effort to live within the household monthly income. Few people set out to become indebted. The events of life cause last minute financial decisions that use funds designated for other needs. The wise money manager will embrace significant changes in spending habits going forward.
Spend cash only – Studies have proven that a household that spends cold, hard cash will spend 30 percent less each year. Limits placed on spending are absolute when insufficient cash is available to make a last minute purchase. Major purchases require planning and consideration when counting out $100 bills.
Create an emergency fund – A savings account with an amount equal to six months of household income must be created as soon as possible. Unplanned bills will be paid from this fund instead of using a credit card. Funds used to repay debts will be redirected to the effort to create this fund instead of adding more monthly expenses.
Live on a budget – Families that live on a monthly budget are more likely to reach long-term goals than those who do not live on a budget. Children learn spending habits from the nuclear family. Parents can pass on good financial habits through living by example.
Be satisfied – A grateful heart is more helpful in the quest to live on a budget than any other factor. Most people have far more possessions than necessary. Contentedness is invaluable when life’s circumstances take a turn in an unexpected direction.
Stay the Course
Sometimes, the effort to repay debts will take years. Rewards are an important part of the plan to stay on course and meet the family’s needs. Everyone can participate in fun activities that are not expensive. The celebrations must be focused on the progress. Burn the statements from repaid loans on the barbecue grill outside. Cook a great meal and play games all evening!
A debt-free lifestyle is easier to manage with the support of everyone in the household. Money is a necessary instrument for every transaction. Proper use of this powerful instrument is required to optimize every dollar. Saving money allows the consumer to make informed choices without reacting to current events. Efforts to pay off loans will be rewarded with better sleep at night and more cash to enjoy life.