This article will discuss three important tips for managing your debt.
The first tip we want to discuss is the importance of taking control of your debt. If you do not pay back your debts, you will continue to lose control of your finances.
Before we move on to the next tip, we want to take a step back and explain how debt works and the psychological issues that can occur when you have a lot of debt.
Take control of your debt
When your debts are paid, you still have this debt in your head. You can still see the bills coming in, and you will still feel the stress when they do arrive.
This is a state of mind that you have created. It’s your own mind tricking you into thinking that you are still paying for these debts.
You are holding on to the debt in your head because you are trying to find a way to deal with it. Let’s talk about this a little more:
In psychology, there is a concept known as “cognitive dissonance.” It refers to situations where the person holding a certain belief maintains it when doubtful that the belief could be true.
For instance, if you buy a sandwich and then realize that you just spent money on food. It’s doubtful that the sandwich would have cost $10.00 and that you would spend $10.00 on that sandwich, but that is exactly what would happen to your brain.
The brain would only process a $10.00 sandwich when it thought you had spent more than $10.00 on a sandwich. Therefore, it would be irrational for you to make that decision, and you would go back and count the sandwich once you had gotten rid of it from your head.
You would be looking for that sandwich so you could determine exactly what your cost was.
What happens is that when you start taking debt payments, you are literally asking your brain to reverse its logic. You ask your brain to forget that you made a $10.00 sandwich and start thinking that you made a $3.00 sandwich and then spend more than $3.00 on that sandwich.
It’s cognitive dissonance at its finest. So it’s going to be very difficult for you to stick to a $1,000.00 payment plan if you are holding on to that $10.00 sandwich in your head.
You will feel a lot of stress, and you will feel like you’re not making enough money to pay back your debt.
Developing good habits
One of the most important habits that you can create is not to use your credit cards. Many of us buy things that we don’t necessarily need.
We buy the newest model of cell phone, or you buy the latest tablet. These purchases come with high interest rates, and if you’re not careful, they can eat up all of your money.
By paying in full, you will never see the high-interest charges. When you take the payment out of your bank account, you can easily see how much money is left for your other bills.
You will also see how much money you’re spending per month on your credit card. When you see the money you are spending on your credit card, you will justify spending less money on your credit cards.
You have to keep in mind that if you already make payments on credit cards, it will be tough for you to create a good habit and avoid spending money on your credit cards.
Even if you can come up with a good enough reason to get a credit card, you may have to pay a high-interest rate and pay late fees. Most people will never get a credit card because they don’t want to deal with this negative aspect of credit cards.
Be smart
Borrowing money to invest in assets is okay in the long run, but you need to be smart about it. You need to understand the differences between investing and borrowing money to invest.
Once you get smart about it, you will be able to see that it’s much easier to buy stocks or rental properties than it is to borrow money to invest.
If you are worried about your finances, think about contacting your credit card companies and having them lower the limit on your credit cards. This should help you out quite a bit, and with the recession, who doesn’t need a little help?
Cutting the credit on your cards will have a positive impact on your FICO score.
Pay off your high-interest debts before saving. If you save in an account that pays 5% but owes money on a card that charges 10%, you are losing money by not paying off that debt.
Make it a priority to pay your high-interest cards off and then stop using them. Saving will become easier and more beneficial as well.
If you are running low on money, consider going to work for your favorite retailer as a stock boy or girl. This may not pay a whole lot, but at least it will give you a hand with your finances and help the business out at the same time.
This may lead to a full-time position depending on how well you do.
If you are trying to improve your personal finance habits, remember that it’s common to make daily and weekly choices between your money’s best use. Dedicate a separate amount of time to one type of spending and make sure you stick to your budget.
If you spend too much on something that isn’t on your budget, cut it out.
