3 Tips to Keep Debt Away

Sometimes we build up debt due to emergencies or situations that are beyond our control. Sometimes we just buy too many things we don’t really need. Here are three things to think about when it comes to your finances and how you can avoid debt as much as possible.

Set financial goals: Goal-setting is very important when it comes to your money. Your budget should be an easily attainable financial goal for you. If you’re having trouble staying within a budget, it’s probably a good idea to take a closer look at it. When it comes to saving money, have a defined purpose. Every time you get paid, set up your direct deposit to put money into retirement and an emergency fund automatically. This way you won’t physically be transferring the money and convincing yourself that you can do without putting anything into savings this month. If there is a large purchase you want to make or a vacation you want to go on, open a savings account for that wish list.

Have more self-control: It’s easy to buy something impulsively (especially when it’s inexpensive), but those small purchases can really add up if you’re making them all the time. You need to start saying no to yourself and be really disciplined if you want to be free of debt. Having new things is great and exciting, but are those items worth going into debt over?

Ignore pay raises: If you budget your paycheck as if you’re making less than you do, it’ll be easier to save for the things you want in the future. Plus, you won’t have to put yourself in debt to get them. It may not always be easy to cut back, especially if you have a big family, but every little bit helps. And when pay raises come, redirect those additional funds to your savings account and forget all about them!

Article Source: John Pettit for CUInsight.com

3 Reasons Not to Pay Off Your Credit Cards Too Fast

When it comes to getting rid of debt, it seems like the best option is to pay it off as quickly as possible. This is especially true of credit card debt. It’s high interest, so you should just pay off what you can, as quickly as you can, right? Not so fast.

It’s actually possible to pay off your credit cards too fast. Wait, what?! Here are three reasons to take a step back and evaluate whether or not you should pay off your credit cards immediately.

1. You Don’t Want to Completely Drain Your Emergency Fund

If you have a chunk of change in your emergency fund, it might be tempting to just take the lump sum and pay off your debt.

The problem with this though, is that you open yourself to financial vulnerability if an emergency crops up. You might have to turn to your newly-paid-off credit card. When that happens, you wind up back in debt, and you’ve got no emergency fund on top of it.

There’s a reason financial experts suggest you keep at least $1,000 in an emergency fund before you start paying off debt. That way, if something happens, you can cover it without going further into debt. Don’t deplete your emergency fund in an effort to get rid of debt right now.

2. Watch Out for Cutting into Your Regular Expenses

You feel rich on payday. You feel like you can put $500 toward debt, and it makes sense. Pay it off faster and win right?

Unfortunately, you might not actually have $500 to put toward that debt. What about your regular expenses, like groceries and insurance premiums? Have you looked ahead to the bills you will need to pay in two or three weeks?

Your debt payment needs to be based on your budget and grounded in the reality of your regular monthly expenses. If you aren’t looking at all your monthly expenses, and just throwing money at your credit cards without a plan, there’s a good chance that you will need to turn to those credit cards in order to get through the rest of the month.

That means you take a step back for every step forward. Instead of getting excited and putting a large amount toward debt when you get paid, make it a point to map out your budget. Look at your income and expenses. Then make a debt payment plan that calls for an extra debt payment based on the money you have available.

3. Don’t Put Your Future at Risk

Finally, it can be tempting to take a loan out from your retirement account in order to pay off your debt more quickly. However, that can be a bad idea as well. Even though you are “paying yourself interest” on the loan, the reality is that you can’t replace the time the money is out of the market.

Another potentially dire consequence is that you could suddenly end up needing to pay the whole retirement account loan back at once. For instance, the entire loan comes due within a few months if you lose your job. The amount becomes an early withdrawal if you can’t pay it back — subjecting it to penalty and taxes. That could put you in an even worse position.

Just because it seems like you should pay off your credit card debt quickly, doesn’t mean that you should be so extreme that you put your overall finances at greater risk. If you are looking to pay off your credit card debt, ensure you have a budget and financial plan in place so that your daily expenses and emergency fund are covered first.

Article Source: Miranda Marquit for moneyning.com

4 Reasons You’re in Debt

Status.

We’ve all heard of “Keeping up with the Joneses.” It’s that desire to have the things others have that may be too extravagant for your budget. If you go around thinking about the things you feel like you’re missing out on, you’re probably going to put yourself in a financial hole. Take a pause when you feel an impulse-buy coming on, and save yourself a headache later.

Credit cards.

Don’t let your credit cards be in charge (no pun intended). Take hold of your finances and don’t spend money you don’t have. Sure, there are benefits to using credit cards, but they can also be your worst enemy if you’re not careful. Use credit cards to build good credit but once you start racking up debt, it can take a long time to get out from underneath it.

Unforeseen expenses.

Sometimes expenses come out of nowhere. You may feel like you’re doing good, but then your engine fails and you need a new car. Be prepared. Make sure you’re building up an emergency fund, because if you don’t have it when you need it, you’ll end up putting yourself in a deep hole in the blink of an eye.

Life is expensive.

You may think your budget is mapped out and solid (and it may be), but then your best friend gets engaged. The next thing you know, you’re hitting up an ATM machine. Sometimes, you need to spend money celebrating, but plan ahead and you’ll be doing yourself a favor down the road.

Get yourself on track financially with our budgeting guidebook! Need help creating a budget you can stick to? Attend one of our free budgeting seminars during the year or make an appointment with a representative at your local First Financial branch.

Article Source: John Pettit for CUInsight.com