With the skyrocketing cost of living, your budget can be tight these days. It’s important, however, that this reality doesn’t lead you into a spiral of debt and the brink of bankruptcy.
By becoming aware of your financial situation, you can avoid this dreaded path. After all, we have no control over the price of gas or milk, but debts can always be paid!
Here are 5 tips from personal financial advisor Jean Fortin for managing your debt during this time of inflation.
1. Take stock of your debt
First, write down each of your debts (personal loan, credit and credit cards, etc.) and state the amount owed, the interest rate, and the monthly payment. The amount granted to them each month should never exceed 15% of your paycheck.
Then take the opportunity to measure your leverage using the tool used by financial institutions when applying for credit, the leverage ratio.
2. Pay off your credit cards as soon as possible
Your debts on your credit cards and line of credit generally have the highest monthly interest rate. So they risk leading you into the vicious circle of debt.
If you have outstanding credit card balances and have an unused portion of a line of credit, you should use that to pay off the cards. For a total of $5,000, you could save about $1,200 in interest costs.
Obviously, borrowing money on one credit card to make the minimum payment on another is not advisable. It only shifts the problem.
3. Create a budget and debt reduction plan
To make sure you don’t fill up the end of the month with borrowing, create a realistic monthly budget of your expenses, including making monthly payments on your debt. Avoid the infamous blank page and instead opt for an online budget tool that will do the math for you and list the expenses to consider.
When preparing your debt reduction plan, focus on those with the highest interest rate first, and then attack those with the lowest balance first. Paying off the debts one by one gives you small wins that encourage you to keep going. Every monthly payment with less debt means more money in your pocket!
4. limit borrowing
To get your head out of the water, there’s no point in reducing your debt on the one hand if you have debt on the other. Keep only one or two credit cards. Leave them at home while shopping and be sure to avoid “buy now, pay later” offers. They suggest you can afford anything…or almost, encourage impulse buying, increase your debt without you realizing it, and can negatively impact your credit report.
5. Contact an expert to guide you
When you call a personal finance professional like Jean Fortin, you can speak to an advisor or get personal advice. It is confidential, free and without obligation.
By taking charge of your personal finances you are exactly where you are, you will get the answers to your questions and valuable advice to better manage your money!
Don’t wait any longer to take charge of your finances and contact us today. Advisor to Jean Fortin.