There are alternatives to bankruptcy, and if anyone tries to tell you that there is any easy way out, they are probably trying to sell you some kind of a service or a straight out scam! For all too many consumers, credit cards were a way to finance a lifestyle, and when the going was good, the credit cards were easy to use, easy to juggle and easy to kind of just pay the minimums each month. Now that many of those very same consumers are struggling with this economy, maybe dealing with a lay off, cut in pay, mounting medical bills, a decline in the value of their home, those credit card bills are now overwhelming and maybe even not getting paid, or not getting paid in a timely manner. Is bankruptcy your only way out?
In one word: No. There are viable ways to avoid bankruptcy, and one way is to get back to basics as a consumer. What does this mean? It means as a consumer, you have to get back to the bare bones of what it means to be a smart, savvy, informed consumer and deal with your past consumption habits. You have to know where your every cent is going, how to save as much as you can, and how you can prioritize your debt and work with your creditors on paying your debt. It may take a bit longer than you like, however, it can save you thousands in legal bills, and save you from going through the financial, personal, even professional stress and strain of a bankruptcy.
Your first step is to create a spreadsheet, or at the very least a list of your debts, income, monthly expenses so you can truly see what your reality is. All too many consumers do not want to do this, juggling bills and existing from paycheck to paycheck. You have to be completely honest with yourself, even your loved ones, and open your eyes to the potential of eliminating this stress over time. It can be ugly, but it is a necessary ugly to get the REAL snapshot of your financial situation so you can take appropriate action.
First of all, you need to take stock of ALL of your debts. All of them, from your credit card debt, car loans/leases, mortgages, etc.
You also need to list all of your reoccuring monthly expenses, from home maintenance, to utility bills, to grocery bills, even entertainment or lunch money for the kids. These are monthly expenses that are fairly predictable and that are necessary to running your home. Even drycleaning, cleaning and home maintenance supplies, etc. EVERY single expense, and we know that those can be many and quite a considerable amount of money.
One of the best ways to get your hands around this is to save every single receipt for an entire month. Every receipt. Yes, your wallet or purse will be overflowing, but you should save them in a handful of marked envelopes to organize them. You could save them as: Home Maintenance Expenses, Grocery and Food Expenses, Health Care Expenses, Personal Care Expenses, Car/Vehicle/Transportation Expenses, etc.
At the end of thirty days you should sit down with every single receipt and discuss as a family (this is an incredible exercise to do with your children, trust me, they need to learn financial discipline as early as possible!) and track every single expense. I also urge you to discuss these expenses as NEED vs. WANT expenses. On your spreadsheet, you should even mark each entry as a NEED vs. a WANT.
When I did this, it was very eye-opening. I spent a minimum of about $15 per week on magazines. Magazines? I did not really notice it, a few went into the shopping cart here, a few others there. This is about $800 per year. PER YEAR!
I also had a Diet Coke habit of about $1200. Coffee runs? About another $800. Gum, mints, here and there bags of chips from the convenience store? At least another $500 per year. Just these silly little expenses, indulgences really, were costing me about $3300.00 per year. I was sick to my stomach. Over an adult lifetime of, say, 45 years (20-65 minimum) I could be shelling out $148,500 in absolutely NOTHING? Diet Cokes, mints, magazines and high end coffee? No more.
You, too, can do this exercise and begin to reign in and control your spending immediately. I am not here to say that you cannot have any little indulgences in your life, however, make them smart ones. Get a fun coffee creamer (with a coupon) from the grocery store and you, too, can make those yummy coffee drinks for pennies what it would cost you $3 or more at a coffee shop. Go to the public library and catch up on all of your magazine reading, and you can still photocopy articles or recipes that catch your eye. Budget yourself for a occasional snack or candy treat, put a certain amount of cash in an envelope for your purse, wallet or briefcase and spend only that set amount for the month. If you run out by the 15th, you know that you need to pace yourself better the following month! If you have money left over, go and treat yourself to that fun designer cup of coffee!
In fact, you should attempt to operate as much as possible on a cash basis. You can divide all of your monthly expenses into envelopes and put in the allotted cash that you will spend on that utility bill, gas bill, grocery bill, etc. Again, if you run out of money in any of your envelopes, you need to examine your habits. If you budgeted a certain amount for, say, your electric bill, did you not conserve properly? Did you run the air when you could have opened windows? Did you leave on lights after leaving a room? Maybe you need to adjust your spreadsheet to allow for energy usage at different times of the year?
You will also need to walk through the expenses, and also discuss these as a family. Paying for pool maintenance? You can do that yourself for a fraction of the cost, getting some exercise, too! Examine your drycleaning bill. Sure, it is a wonderful convenience, but did you know that most materials in today’s fashions can be washed at home? Of course the tag may say dry clean, but you can handwash most of those items yourself and save a bundle. Get an inexpensive steamer from Target or Walmart to keep suits and other business attire fresh and wrinkle-free. It may be a bit more work for you, but you have to decide if over the span of your lifetime you want to give that money to the drycleaners, or put more of it in YOUR pocket, toward paying off YOUR debt and saving for YOUR retirement. Paying for expensive brands for personal care or health care? Look at store brands or drug store brands to save big, and ask your doctor about less expensive alternatives or generic prescriptions.
You also need to have in your spreadsheet all of your credit cards, and include the minimum monthly payment and interest rate. You may find that by shaving some of the “WANT” spending, you will have more money to apply toward paying down credit cards. Most financial analysts will tell you to tackle the highest rate cards first, so you need to include that information on your spreadsheet. Even if you can put an extra $5 or $10 per month to each of your cards, you will find that you are paying them down faster than you may think.
And, STOP USING CREDIT CARDS! Don’t carry them in your wallet, carry one emergency card only if necessary. Or, carry only your branded (Visa/Mastercard) debit card that can function as a credit card if needed. Budget yourself a set amount of cash to have on hand, and use cash to pay for groceries and necessities and only spend what you have budgeted. I have seen all too many consumers using two, even three credit cards sometimes to pay for a transaction. Don’t play that credit juggling act, you will end up dropping the ball.
In closing, this spreadsheet exercise is one that will help you to do the following:
Examine every expense, no matter how minor.
Truly think about the NEED vs. WANT factor of your expenses, helping you to prioritize the NEEDS first, the WANTS a very distant second.
Budget for your necessary expenses, ensuring that your bills get paid on time.
Operate with more cash, using less credit.
Create a plan on your spreadsheet for paying down and paying off credit cards. Focus on those with the highest interest rate first, if possible.
Track this daily, as it takes time to build the discipline and the right spending habits. Discuss it nightly at the dinner table, or pull it up first thing every morning over a cup of coffee.
Build in a budget to enjoy life as well. You can still have fun while saving money and paying down debt…you may just need to examine your idea of fun and indulgence. Just remember that it can be the indulgences that derail your plan to save and to be a savvy consumer. Stay on track, it can and will change your life for the better!
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