According to the 2018 Planning & Progress Study by Northwestern Mutual, the average U.S adult has about $38,000 in personal debt. This is not adding up additional debt from mortgage loans to pay off that Cincinnati home for sale. While loans and other debt can be useful for investing in your future, it will have to be paid off eventually, allowing you to build net worth. Oftentimes people find they simply can’t for one reason or another, which can result in being stuck in a debt cycle that feels impossible to get out of.
All that borrowing leads to more debt, and the interest that results can become a major monthly expense of its own, increasing debt even faster. Some end up taking out loans just to keep up with the minimum monthly payments or to pay off other loans. If you’re struggling in this seemingly never-ending cycle of debt, these tips can help you break out of it.
Keep Track of All Your Spending
If you’re not paying attention, it can be easy to spend more than you earn. Carefully tracking all your spending is one of the best ways to assess your financial situation in the most accurate way possible so that you can create a plan to fix it. Download an app, make an electronic list or spreadsheet, or just write it down by carrying a notepad and pen with you everywhere you go– whatever is easier for you. Just before sure to track every penny, from that cup of Starbucks you pick up every morning to your mortgage or rent payment.
Create a Budget
Once you know how much you’ve been spending, go over all of your finances, including income and expenses so that you can create a balanced budget. Start with the necessary things such as food and housing, and that look at all your other expenses, making sure to save some for emergencies so that you don’t have to turn to credit cards when the inevitable happens. You may need to cut back in some reasons, such as getting rid of cable and using cheaper streaming services, spending less on groceries, cutting back on utility bills and so on.
Not that you have a budget, the key is to stick to it. The easiest way to do so is to pay in cash. Not only does it keep you from paying credit card interest, it can help you spend less overall. When using cash, you’ll see exactly what you’re spending, and once that money runs out you have no choice but to stop. It’s a good reminder that you’re done with the days of accumulating all that debt while making you think harder every time you make a purchase as to whether or not that’s really how you want to use the limited funds you have. You might want to budget a certain amount of cash to various expenses such as dining out, groceries and entertainment. Once the money is gone in each category, you’ll know your budget for that category is maxed out.