Household debt in America has reached a level not seen since the financial meltdown of 2008.
This means that U.S. households are carrying a staggering combined debt of $12.58 trillion. This is just below the peak in 2008 (see chart). Slow to flat income growth has not kept up with the rising cost of living over the last decade, causing many to rely on credit cards and other means of credit to get by. Because credit has been easier to obtain, especially in the last couple of years as banks and other lenders have eased lending practices, the problem will likely get worse.
One of the hardest hit groups in this growing credit card debt problem is single parents. Living on one income, while bearing the expense of children, can be a difficult road for many. Children are an expensive proposition. Not with just basic needs such as clothes, shelter, and food, but with school supplies, extracurricular activities, and medical expenses as well. Sometimes, because of divorce or abandonment by the spouse, one parent must bear that expense entirely on his or her own. One income is often not enough.
1. Create a realistic budget
Most Americans don’t have a budget or even know how to create one. Most Americans just go about spending and paying bills until they get to the end of the month. If lucky, they have enough money to get through; however, more often than not, there is a shortfall of cash, forcing them to turn to credit cards. Creating a budget is not hard, but if you don’t have experience in budgeting, there are plenty of resources online. Websites such as Mint have budgeting tools to help you.
Creating a budget means allocating your income to certain expenses and making sure that you don’t exceed that amount throughout the month. For instance, housing should represent about 30% of your income. If you are spending more than that on your home or apartment, this could be a source of your financial difficulties. By writing down all of your current obligations and comparing them to your net income, you will begin to see where you are overspending or how much income you are lacking. Until you work on budgeting, every month will be a financial mystery that could end up with you relying on credit cards to get by.
2. Pay your bills on time
Falling behind on your bills can have significant effects on your financial picture. Lenders report late payments to the credit reporting agencies, and your credit rating could suffer. In addition, lenders are not very forgiving, and they will charge stiff penalty fees for late payments. If you are consistently paying your bills after the scheduled due date, you must take some kind of action to catch up.
Sometimes, lenders will actually move your due date for you if it is falling at a time of the month that makes it difficult for you. In addition, bills such as mortgages, rent, and car loans often have the highest late payment penalties, so be especially mindful of making those payments on time. Paying late payment charges is unnecessary and uses up valuable cash you need to make other payments.
Perhaps hold a garage sale or sell some items you are not using through eBay to raise enough cash to catch up on your bills. If you can, get ahead; then, if you do have an extra expense, you will have the cash flow to cover it without relying on credit cards or having it affect your ability to make other payments on time.
3. Cut out unnecessary spending
When you sit down to work on your budget, you will have the opportunity to review all of the things you spend your money on during the month. This is the time to evaluate your spending and find ways to eliminate unnecessary expenditures. Look at bills such as your cable and phone bill to find areas you can cut down. Often, you can take 10% to 20% off your bill just by dropping services that you are not using or no longer want or need.
Scour your credit card and bank account statements for charges to eliminate, especially if they are recurring (think Netflix or Birchbox). These types of charges put a silent drain on your bank account that can add up to a substantial amount by the end of the year.
Other places to eliminate spending are in your everyday habits. Stopping for that expensive morning coffee or eating out often can have a surprising effect on your budget. Cutting out small expenditures that are insignificant to your daily life could create enough cash flow to get you back on track.
4. Get a second job
Adding additional income to your monthly cash flow is one of the better ways to close the gap and get on top of your finances. You must get yourself in a position financially to stop relying on credit cards for basic living expenses or emergencies. Adding a second job can enable you to start paying off your credit card debt, or start a savings account.
If you are going to expend the time and effort to get and work a second job, make sure you are serious about putting your finances in order. A second job, especially with children, is often taxing, both physically and emotionally. You also have to be careful of spending more because you are making more. Be sure to have a plan for how you will utilize that extra cash to improve your financial picture.
5. Pack your lunches
Eating out can be a huge drain on your finances. Even fast food, which is not ideal for your health either, can add up to quite a bit of money at the end of the month. Packing your lunch every day can save you more money than you think. Spending just $10 dollars a day, which is a modest check average, adds up to over $200 dollars a month, and this number does not include any other meals out in the evening or on weekends.
Packing your lunch will not only help you control your spending, it can also help you control your waistline. Packed lunches are cheap when compared to lunches you buy, and they can be far healthier. Planning often leads to better choices both financially and nutritionally.
Whatever your situation, if you are running behind on your bills, don’t wait until things become critical before acting. Falling into a state of insolvency is a bad way to go. If you realize that you are in too deep with no way of climbing out of your credit card debt, there are debt relief companies such as National Debt Relief that can help. Debt relief companies help those in over their heads by negotiating settlements with credit cards companies. The process is not fast, but it is effective. Moreover, the impact to your credit scores is far less than that of a bankruptcy.