How to stop the debt explosion before it stops you

debt-stop-spendingTIME TO PUT ON THE DEBT BRAKES

 

No one likes to hear the word debt for many they need to realize that it’s something not to ignore.

I know what living on less is like and not having any money to spend on the things I wanted. Although it was tough seeing my friends get everything they desired I knew that if I didn’t take control of my finances no one else would give a crap about how much money I had in the bank or debt I had with my creditors.

Having too much debt that you can’t handle is depressing and can really set back many people from moving forward in all aspects of life because they don’t feel they are worth anything, they won’t ever get ahead and they fret on what they should have done in their life as opposed to what they can do now moving forward.

I didn’t want to be like a family member of mine that was dodging the credit card companies every month because she couldn’t pay the bills or she was revolving money from credit card to card and borrowing money from people just to try to get ahead.

Maybe I was lucky to see how money stress caused her to just give up on not only herself but her loved ones that was in part what fueled my passion for finance. I didn’t want money to take control of my life and something just clicked in my head and I went with it a little bit at a time.

If getting ahead with your personal finances is what you crave then do something about it. Talk is cheap so get moving and show yourself that you have the drive to take the stress that weighs so heavily on your shoulders away because that is what taking back control is all about.

My friend Tony was $100,000 in debt and what he did might be shocking but in reality it’s not. He has a family and he wanted back that control that as a family they gave up so graciously to buy stuff they didn’t need and thank goodness they realized it before it was too late. You don’t want to get to the too late stage because if you think the stress is too much now you don’t know what is about to hit you when you turn the corner of no more options.

 

Debt explosion

 

If you don’t have any savings in the bank and your credit cards are your emergency funds you need to stop spending now, it’s no joke. Losing everything that you worked so hard to build in your life is not a laughing matter and should not be avoided until it’s too late and the debt explosion happens.

Don’t wait until the bitter end and wonder why you are where you are when all you needed to do was stop spending more than you earn and find alternate ways to either make more money or cut back by making simple changes in your life. There is never an easy answer but the brakes start with you.

 

Alarm bells go off

 

My friends Laurie and Rick over at Frugal Farmer recently wrote a post about what to do when you wake up and find yourself in debt and what stuck out the most about the article was not to “panic”.

That is essentially what many people do when they are faced with a debt load they can’t handle and they only stress themselves out and the negative comes out rather than the positive ways to get back on track. You can’t go back and change what you’ve done as Laurie says but what you can do is change moving forward and make it right.

Think about how much money you would have had if you didn’t spend on all the little things you really didn’t need to buy or items that are collecting dust because you haven’t used them, haven’t fixed them as planned or you’ve lost interest in after the first hour, month or year.

Spending money to show that you have stuff doesn’t prove anything to anyone not even yourself because you know how much debt you have even if no one else does. No one else is going to care if you have a Gucci purse or a big screen TV even if you use the excuse that it was on sale it doesn’t matter if you don’t have the cash to pay for it because in the long run that sale price is null and void if you don’t pay that credit card off in full. So your $500 sale TV turns into a $1500 TV over the years and so on because you just keep piling on the credit card debt.

Don’t believe me, then read the fine print on your credit card statement when it arrives in the mail and see how long it will take you to pay off your credit card bill if you pay the minimum payment every month and what that balance will cost you over the term. It will shock you and if that isn’t enough to light a fire maybe it’s not until it’s too late that you will take charge of your finances but by then you may be faced with other challenges such as losing it all.

What are the consequences if you continue to spend?

Write them out so you keep reminding yourself what you could potentially lose. It may seem insensitive but for some people they need that reminder day in and day out because nothing and I mean nothing is worth risking your livelihood over especially if you have the ability to control the outcome from the start.

Understand why you are spending money that you don’t have…..

 

It’s for life

 

It doesn’t matter how much money you make because if you are an avid reader of personal finance blogs or you make what most consider a decent salary you know that it doesn’t matter how much you earn.

If you spend more than you earn you are just as worse off than someone who earns a portion of your salary yet spends less than they earn and makes their money work for them. We never had huge salaries over the years and that’s how we know that you don’t have to make a fortune to save a fortune all you need is to believe in yourself and follow through with a savings plan whilst paying down your debts. All situations are unique so figure out what works for you.

Easier said than done if you are already in debt I know but if you keep complaining about it you aren’t going to start. Start now, start somewhere, just do it, you will be happy you did. If you are on a limited income find small ways to increase that savings pot even if it is only $1.00 per week. Cut back on buying processed foods do whatever it takes to relieve the stress from your life one dollar at a time.

I read an article once that said if you can afford internet, cable, home phone, eating out and smoking etc. then you are well ahead of some people who simply can’t afford to put food on the table. Finding ways to make changes may be available to you if you have services or habits  that you can potentially do without.

The kicker here is that it’s a change you will be making for life not just a month or a year or two years. Your debt may take longer to get rid of then it took you to create so be prepared for that. You need to set realistic goals for yourself especially if you have quite a big load of debt that you want to get rid of.

When we set unrealistic long-term and short-term goals we are apt to give up easier. Don’t try to change everything about your life all at once as it may be too overwhelming for you and you might just throw in the towel. Stop making excuses as to why you do what you do and continue spending money because you’re only hurting yourself.

You may also find that over time once you start to see the positive changes that you will become much more detailed with your budgeting and savings plan.

 

Create a budget

 

Set out your finances so you can see what numbers you have to work with to set up your budget. Take the time to understand what comes into the household and what needs to be paid first and foremost. Usually the rent or mortgage is going to be the number one priority followed by the utilities such as electricity, gas and water.

You need to know the maximum amount of money you can spend in any one month by adding up all the bills you are liable for and then include variable expenses such as food. Spending all of your money before everything is paid for is going to leave you creating more debt. Spending every last penny you have every month is not going to get you out of the debt you are currently in.

Set aside a portion of money in your budget for debt repayment, just make sure you’re paying more than “minimum payments” if the debt is credit card based otherwise you’ll be paying for it forever and a day.

 

Cut up the credit cards

 

One of the things fueling the debt fire will be how much you’ve borrowed and where you borrowed the money from. These days credit seems to be far too easy to obtain, mainly because there are so many companies willing to lend you the cash from which they can make increasingly amazing amounts of money from you.

Stop borrowing, it will only create more debt or prevent you from getting out of debt sooner or altogether. Credit Cards and Pay Day Loans are always the most expensive way to borrow money. If you’ve budgeted your finances correctly you shouldn’t need either of these services.

Don’t turn to family or friends to borrow money. You don’t want to create problems in those relationships you hold dear, the debt is your responsibility not theirs. Besides, paying off your debt to the credit company with someone else’s money still hasn’t got you out of the hole, you’ve just moved it round in the hope it will go away.

Try and pay for everything you need with cash or through debit. Track your spending after previously setting yourself a budget for that particular category. Just because you’ve decided that going out causes you to spend more money, don’t let the shopping bug attack you in the home. Leave the internet shopping and Shopping channels on TV alone, you don’t really need it.

Buy only what you need to live. It may sound a bit desperate but you’ll be surprised how much you don’t need in life to survive. If you need to get out of debt then you will have to stop buying wants and concentrate on the needs in life.

 

Stop paying bank fees

 

It never ceases to amaze me that people pay so much just to access and use their own money from the bank that they house their hard earned cash in. Negotiate with the bank or just tell them it’s not acceptable and swap institutions. There are banking facilities out there that will cost you zero per month and yet you can still do just about everything that anybody else can.

Considering the big banks posted such big profits, it’s amazing that they still charge their customers so much.

 

Eat in and pack a lunch

 

Use your noodle and take a packed lunch to work, it’s cheaper than buying out at the fast food joint everyday and it’s healthier too. Add up all the convenience food and coffee you buy in a week then work out the cost per month, you’ll be shocked at the amount your frittering away each month.

Cook and eat in more. Going out to restaurants can be costly, especially if it’s multiple times a week. Don’t get hung up on the fact that two can dine for $9.99 at a fast food restaurant, it would still be cheaper if you cooked a far healthier meal at home. If you can’t cook, then I would suggest that you start learning. There are plenty of free resources online that can show you the basics of cooking such as “If you can read you can cook” by my friend Edward.

 

Frugal outings

 

There are cheap days out, going to the casino is probably not the best thing to do if you’re trying to get yourself out of debt so think up other activities you can do. There are plenty of cheap days out in and around Ontario.

Instead of spending $500 for a snazzy weekend in Niagara Falls, spend $5 parking and go to Webster’s Falls just outside Hamilton. I could list all sorts of days out but I’m not a travel site, so I’ll leave that up to my audience to discuss.

You must change your money mindset if you want to stop the debt explosion something similar as if you are quitting smoking or getting fit or eating healthy. It all boils down to wanting to make a change and sticking with it.

 

What made you stop spending and start focusing on paying off your debt?

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Mr. CBB
Mr. CBB was born and raised in the United Kingdom who then moved to Canada where he is a permanent resident. He recently became a father to a very busy toddler who allows him to be a kid at heart. He bought his first house at the age of 21 after University and his second at the age of 24. Both Mr.CBB and his wife are Debt and Mortgage Free and they did it all in under 5 years using a Budget. Canadian Budget Binder is a place where he shares their financial experiences with his readers and hopes to learn about theirs. Welcome to CBB!
Mr. CBB
Mr. CBB

Comments

  1. THANK YOU for writing this, Mr. CBB. I have had such a heart the last few weeks for those who are in deep like us but haven’t had their wake-up call yet, and this tell-it-like-it-is post will be a huge, huge help to many, I’m sure. Readers, you CAN get out of debt. It likely won’t happen tomorrow, but with the commitment to stay the course, you can get it done!!

    • Sometimes it’s the wake up call that is needed. When we just dance around the bush nothing gets done. We need to own it and do whatever we can even if it’s something small or takes a while at least something is happening.

  2. Great stuff here! My “ah-ha” moment came because I was convicted about my spending habits. I would have gone into more debt had I continued to spend out of control. Fortunately, by putting the brakes on, I was able to minimize the damage and get back on track.

  3. Christine Weadick says:

    Some good advice in the blog. I am working on getting things in line as much as I can. Crazy as it sounds we don’t have much debt besides the mortgage and a small amount on a LOC but we are trying to get both ends meeting in the middle. M/C was paid off and the LOC had a hefty payment made after our older boy finally heard about his disability payments from CPP. He will now be getting a monthly amount from CPP-D and a good chunk of that will go to us as room and board. Now to deal with ODSP for him to help pay for his medications for depression and such. Besides being able to pay off M/C and most of the LOC this also means that I no longer need to worry about paying for his meds or his smokes. He has cut back there a lot since getting out of the military but there is still room to improve…he is trying. We had been hitting the LOC and M/C for survival but now, now so much, thankfully. There is a light at the end of the tunnel but it is still a long tunnel. One step at a time……

  4. Realistically I think we all have a financial “breaking point”, just as we do for other long-term goals like losing weight. We mumble and groan about our debt, wish it would go away and dread opening bills right up until we reach that tipping point.

    For me, it was realizing that after my basic expenses basically *everything* I earned was going on debt repayments.

    Wow, did that ever suck! For years I’d *wanted* to get out of debt but it was that point that made me “grasp the nettle” and decide once and for all to get that debt eliminated.

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