Use these five tips to avoid common financial pitfalls.
explain how you got where you are. But, it is not always a catastrophic event that leads to a large
amount of debt.
When you get over your head financially, it is easy to look for a single event to explain how you got where you are. But, it is not always a catastrophic event that leads to a large amount of debt. Instead , it is often the culmination of several bad financial habits, that all lead to an increase of debt beyond what you can handle. Use these five tips to avoid common financial pitfalls.
1. Create a budget
Many people shy away from having a written budget, thinking they won’t stick with it, or that it will keep them from buying what they really want or even need. But a budget just helps you plan how to use your money in the best possible way, while providing for those unexpected expenses. The benefits are enormous when you know exactly where your money is going, and you have a plan you can stick with.
2. Have an emergency fund
Face it–some unexpected disaster will come up at some point in your life. It could be a job loss, a death in the family, a medical emergency, or a month in which everything that can break down, does. If you do not have any extra money socked away, you will be faced with having to tap into your credit cards, sometimes adding large amounts of debt to your current balances. A good rule of thumb is three to six months’ living expenses. But even just $1000 put away can head off many unexpected expenses . Start saving about 10% of your take-home pay each month until you have a savings account you can count on.
3. Make more than the minimum payment
Paying only the minimum on your credit cards will extend the time to pay down your debt by years and will increase the amount of interest you pay. Any little bit helps, so consider where you can trim your budget to be able to send more each month. If possible, a part-time job could go a long way toward helping you to become debt free.
4. Use your credit cards conservatively
Sure, some stores will offer you a discount for using their credit card for your purchases. But these cards often come with a very high interest rate. If you don’t pay off the card, you will be faced with paying more in interest than you saved by getting a discount. If you are unable to keep track of your purchases, make it a habit to pay for them with cash or a debit card.
5. Make payments on time
Paying a bill late is never a good idea. It is not just the late fee that will get you. Some credit card companies will up your interest rate to the maximum it will go. Even worse, you can fall into what is termed "universal default." This means that the interest rates on your other, unrelated credit cards will also shoot upward.
Richard “RJ” Jaramillo, is the Founder of SingleDad.com,
a website and social media resource dedicated to single parenting and specifically for the newly divorced, re-married, widowed and single Father with children.
RJ is self employed, entrepreneur living in San Diego and a father of three children. The mission of SingleDad is to help the community of Single Parents
“Make Life Happen…Again!”