Financial problems affect every area of life. It can hinder daily activities and spirit. Taking charge of a financial situation head on is the best way to combat unwanted stress and debt. According to a survey conducted by the American Psychological Association in 2004, over 73% of Americans name financial problems as their primary source of stress. Getting rid of troublesome debt should be a priority in everyone's life.
Know the Numbers
The first step to eliminating debt is to analyze the current situation. Sit down with all outstanding bills, a notebook, calculator, and pencil. Begin by making a list of everything owed. Then on another sheet write down income and any savings available. How much money is actually coming in? If an individual is in debt the amount owed is probably greater than their monthly income.
Seeing it on paper and writing it down gives the exact numbers on where a person is financially. It may not be the numbers they want to see but this is an important step to do in order to take charge of their personal finances. Knowing these positive and negative numbers will assist them in planning their future.
Save Money and Build an Emergency Fund
Now that an idea has been established of where an individual is financially, it’s time to build an emergency fund. A major trigger in money related stress is not being able to cover an unexpected expense. Starting an emergency fund before a person starts tackling their debt problem will help ease their mind. Having an emergency fund available keeps worries at bay while investing extra money from their income into debts owed. The minimum emergency fund total should be at least a $1,000.
To help save money for this emergency fund sell slightly used items on eBay, have a garage sale, start a side-job at home freelancing, or pick up a part time job. When the set amount is saved they should work out a plan to supplement their income by $200 a month. This amount will be used to pay off their credit card and other debts using the debt snowball technique. The concept of snowballing debt was made popular by financial guru and author Dave Ramsey. Millions of individuals have used this same technique to assist in eliminating their own debt.
Using Debt Snowball
Take the list of debts that was made earlier and organize it. Order each debt smallest to largest according to balance and interest rate. Next to the amount owe record the minimum payment. Leave room for another column that will represent the new amount that will be paid monthly. Begin with the smallest debt and add $200 to the minimum payment that was previously paid each month.
Keep paying the amount until the debt is completely paid off. Cross it off and move on to the next debt add the amount from before that was used to pay off the first debt to the second. This technique is called a debt snowball, and it works. The entire process is designed to break the bad habit that got most consumers into debt and build a new habits that will lead to financial freedom. Confronting financial problems with effective techniques like debt snowballing will help get rid of stress while on the road to financial goal success.
Sources:
Hardcore Stress Management, Stress Statistics, Accessed 14, October 2009.
Ramsey, Dave. "The Total Makeover: A Proven Plan for Financial Fitness." Nashville, TN. Thomas Nelson Publisher. 2003.
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