A Debt Checklist is the only sensible way to organize and
control your finances. Most people aren't actually aware quite
how much debt they possess - in fact, a recent survey found that
almost 75% of UK adults were up to £5000 out when asked to
estimate their non-mortgage debt. They weren't much better when
asked to produce a cashflow statement showing how their hard
earned cash was being spent each month!
A Debt Checklist is a plan you can use to get a grip on your finances, and will
allow you to understand in black and white, where savings can be
made, and how debt can be tackled most effectively.
Obviously, you will have a savings account. If you DON'T, go
open one now. Choose a large, reputable bank or loan company so
you won't have any problems getting access to your funds when
you need them.
Secondly, you need to cut back on your credit card spending.
Credit card companies do everything they can to encourage you to
spend, and even more to try and cajole you into only paying off
the minimum each month, making credit cards the MOST expensive
way to borrow money you are ever likely to come across. If you
find yourself paying for 'small' items with a credit card, you
are asking for trouble. Not only will you be that annoying
person in the front of the grocery queue at Walmart paying by
card, but you will also rapidly lose ANY idea of what you have
spent, and where. Debit cards are SLIGHTLY better than credit
cards for these small purchases, but not much - you will still
face a terrible temptation to spend more (up to 50% more than
paying by cash, if recent surveys are to be believed!)
You MUST pay more than the minimum payment each month - if you
don't your debts will be around for a LONG time! It can take
over 20 years to pay off a measly $1,000 credit card bill if you
simply pay the 2% minimum each month. At the end of this, the
interest payments you have made will FAR exceed the original
debt! And that, of course, is how credit card companies afford
those swanky downtown offices.
If you have dependents, you need insurance. It may seem like an
extra cost right now, but believe me, it is 'Murphy's Law' - if
you don't have it, you will need it imminently! Auto insurance,
Mortgage Payment Protection, house insurance and life insurance
are a basic set you need. This point is related to pensions,
too. Start as early as you can. If you don't have a pension plan
now, start it immediately. The tax advantages just can't be
missed. And the earlier you start, the sooner compounding has a
chance to work it's magic. And compounding is the secret that
will determine if you have a comfortable retirement, or live in
a shack, eating beans. And don't try and kid yourself you won't
make it to old age - bet you will, and bet you will be surprised
how expensive everything is in 30 years!
Read up on money, and money topics. If you understand how cash
works, the chances of getting into serious debt decrease
dramatically. I'm not saying you have to read the Wall St Times,
but an understaning of interest rates and compounding won't
hurt.
That's about it for now - Get saving!
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