The first step to lowering debt, for anyone, is properly evaluating your current financial situation. It can be difficult to tell whether you’re drowning or just experiencing a severe drizzle. There are a few things you can do from the comfort of your own home to determine your current financial situation. Don’t let the bad weather get you down. Just stay positive and use the following items for evaluating your debt and develop a plan that works best for you.
Tips for Evaluating Your Debt
Start by comparing your monthly income to your total monthly debt payments. Are they significant? Do they make you cringe in terror? Or can you pay them off in a few months if you put all of your workable income into your debt? If you think about it, after all, your bills, you can easily throw the rest of your cash at debt. You might not have fun for quite some time but nothing beats the relief of living a debt-free lifestyle. You have your rent/mortgage taken care of so the only thing you need to focus on is food. Maybe a few trips to your parents’ house can save you some dollars for debt.
How’s your savings looking? Can you afford any unforeseen expenses that might pop up? Experts suggest having a separate savings account that can pay for your savings for at least the next 3 months. This includes your recurring expenses such as mortgage/rent, car payments, etc. It’s important to have this type of cushion in case you lose your job or need to pay an emergency expense.
If you’re a little further along in the financial game, a good method for evaluating your debt is to see if you’re on track with your retirement contributions. You can easily calculate your debt to income ratio by dividing the amount you owe with the amount you make as well.
If you find it impossible to contribute to your monthly savings, even if you’re living like the example above, you might need to reconsider your strategies for paying off debt. This type of savings should be separate from an emergency savings fund as a part of what you plan on retiring with.
If none of the above methods for evaluating your debt seem to be going well for you, it may be time to sit down with a financial advisor. They can help you develop a more detailed plan to get you back on track to get rid of your debt and start saving.