It can be very easy to lose control of your finances, especially in recent years. For some households, it can just take one unexpected expense or a job loss and they go from being in a seemingly stable state to a financially desperate situation. Or it could be that a few years of bad spending habits have put you in a difficult position and debts you struggle to repay.
Whether you are on the back foot financially or you simply want more control over your money so you have a safety net, here are a few things that can help you get back on track.
Dealing With Emergencies
It’s often said that life is cheaper for people to have money. This might seem counter intuitive, but if you don’t have the cash on hand when you have a sudden job loss, expense, or an accident or illness that leaves you with hefty medical bills, you will struggle to meet the costs a lot more.
However, this doesn’t mean you don’t have any answers at all. One option is to take out a loan. When you go into debt, you do have to pay it off and this can get expensive. However, there are different types of loans that could be better for your situation. For example, if you have a vehicle, you can look into Phoenix title loans which allow you to use your car as collateral.
Collateral allows you to potentially get a better deal on your loan, or it lets you take out a loan even if you don’t have a great credit score. This will give you some time to deal with the emergency and then pay off the debt.
Getting Out of Debt
Speaking of loans and debts, one of the best ways to dig yourself out of a financial hole is to reduce or eliminate your debts. As we know, sometimes loans are inescapable, especially in emergency situations.
But the first thing to do is to look at your pattern of debt. If you go into debt to purchase a house or because you’re in an unfortunate situation and don’t have an option, there isn’t a pattern of living outside of your means. But if you go into debt to make unnecessary purchases that you can’t afford, it’s best to reevaluate your spending habits. We’ll look into this in more detail later on.
For now, let’s tackle the debts you do have. A mortgage is a common debt that often can’t be quickly repaid, although you can sometimes adjust your repayments or pay more to pay off your house sooner.
Other debts can and should be repaid as soon as possible. Rather than only ever paying the minimum amount on your repayment, try to pay off your debts sooner. This means you end up paying less in interest rates.
This is easier said than done, but there are a few strategies you can use to make paying your debts easier. If you have savings, put those toward your debts. The interest rate on your debt will probably be much higher than you could earn from savings. A consolidation loan, for example, is a single loan that you can take out to pay off all of your debts. You then only have one loan to pay off, and it’s ideally at a lower interest rate.
Other options might be the snowball or avalanche methods. These methods involve paying off your loans one at a time, while only paying the minimum amount on the others. Once the first loan is paid off, you move onto the next, and so on. The difference is which loan you pay off. The avalanche method focuses on the debts with the highest interest rates, while the snowball method focuses on the smallest debts.
Managing Your Spending
As mentioned before, sometimes the problem lies in how much you spend. Reducing your debt will help with this, but what about other spending habits? The best way to actually control your spending is to first examine your bank statements. Go back about 6 months or so and see how much you spend compared to how much you earn. If possible, make a list of your average spending on bills, necessities, debts, and unessential items.
From here, you can spot potential problems. Do you have subscriptions that you rarely use or don’t need? Do you eat out or buy things often that you could go without? Sometimes the answer jumps out at you if you just look.
More often than not, the answer isn’t as easy. The next step is to create a budget. Your bills, debts, and necessities take priority over everything else, but it’s still good to have some money set aside for “fun stuff” as well, because this keeps your budget reasonable.
You may need to make some hard decisions, like stopping an entertainment system you often use because you can’t afford it. But it’s worth it to be more financially stable.
Earning More Money
While there’s a lot to be said about reducing your spending, you can also look for opportunities to earn more money. This allows you to pay off your debts more quickly, build up your savings, and improve your quality of life overall.
The most obvious option is to find a better-paying job in your industry or try to get a raise or promotion. It’s good practice to always keep your options open for different jobs that you would be skilled at.
You can also consider adding another stream of income to your finances. A startup or side hustle is a way to use a few hours of spare time to make a bit of extra income. This can evolve into a larger business over time, but it can also be enough just to cover some of your expenses. Even a small amount can help you pay off your debts and take off some of the financial pressure you might be dealing with.
