Going into Debt or Paying it Off - It All Adds Up

This is a piece I recently wrote for my section on ArticlesBase. Good personal financial decisions owe the bulk of their make-up to plain old common sense, and this posting is no different. The most common slip-ups we make (not just with our finances) are due to issues that are often right under our noses.

Author: Jonathan Kolanowski

Other than a true lack of money, people put off paying down their credit card debt for one of two basic reasons.

• They get discouraged. "It will never be paid off, so why should I try?" -- Have you made an effort? Do you have an actual budget?
• They think they don't have the money. "I don't have any money to pay it down. I have to spend every dime I make." -- Are you sure about that?

First of all, the most important thing to remember is that every little bit helps. The reverse applies to how many of us put ourselves into debt in the first place. Every little bit hurts. Too often, it is the small items that we overlook when managing our money. Those small items can add up very quickly. A few lifestyle changes might go a long way towards helping to fill some holes in your budget. Stop and take a minute to consider how much you actually spend on bad habits or small impulse items. Do you really need to use debt consolidation loans, credit counseling and other forms of debt relief, or do you simply need to be better with how you spend and manage your money? In some cases, the latter may actually be true.

Let's pick off an easy one. Do you enjoy a morning coffee? I'm not a coffee drinker, so for me, it was caffeinated pop (still applies). Even though it is better move for your cash flow (and in my case, my health), you don't have to give it up entirely in order to give your budget a shot in the arm. What is important, however, is for you to take a look at how and where you purchase your coffee. Do you stop by the gas station convenience store or "trendy" coffee shop on the way to work, or do you shop at your supermarket, buy in a quantity that will save you money and brew it yourself? That daily $3 or more for your coffee fix can add up to $1,000 or more per year. [My wife keeps excellent records. My Mountain Dew addiction cost me $978.20 in the 12 months leading up to the point I quit!] Don't forget to figure in what is often overlooked, the tax. I'm not referring to the sales tax you pay when you buy your drink, but the income tax that you already paid. Go ahead and tack on a couple hundred dollars more (depending upon your tax bracket). Do you lean on coffee to keep going in the afternoon? Uh-oh! Two times a day is really going to hurt.

OK, so you may not be a coffee drinker. Or, maybe you just aren't convinced that you have some fat that can be trimmed from your budget. Try this little experiment, and use it as a visual aid.

1. Use a personal accounting software program like Quicken. If you don't have one (and, you should), a great place to get trial versions of software is on DownLoad.com.
2. Start by adding categories for your common, necessary expenses. Examples, such as: loan and credit card payments, housing expenses, groceries, gas, utilities, etc.
3. Next, insert one category for the non-essentials you spend money on. Add them all in there: your coffee, trips to the pop machine, alcohol, fast food, snacks and cigarettes.
4. Continue with your daily routine as normal, but record all of your purchases for the entire month.
5. At the end of the month, have your software program create a pie chart of the money you have spent.

Are you surprised by the result? It may be a rude awakening for you to see the size of the piece that is going to items that aren't really necessary. Or, at least, what is going to ones that could have been bought in a much less expensive manner. At this point, you should feel a question nagging at you. "Do I really not have the money to pay down my debt?" It is a little harder to ignore the truth when it is staring you in the face. What about those of us that are just plain discouraged? Well, it all comes down to looking at the situation as a set of alternatives. You can either start to climb out of debt, or sink deeper in. What do I mean? Just going with our coffee expense, carrying a $1,000 credit card balance could very easily cost over $200 a year. Tack that on to what you already owe and slide a little bit deeper in debt, or make some positive changes and start to get control of your finances.

Paying down debt becomes easier once you put it into perspective. Never try to bite off more than you can chew. Do what you can. Cut back on your stress by keeping your spending habits in check. Or, better yet, skip the bad habits altogether. Your wallet will thank you!

Article Source: http://www.articlesbase.com/personal-finance-articles/going-into-debt-or-paying-it-off-it-all-adds-up-5833694.html

About the Author

Writes on various personal finance subjects and offers help and suggestions for consumers on how to shop for financial services online, such as debt consolidation and other forms of debt help. In addition, authors content on home financing and responsible budgeting.