Your Family Budget, Credit Cards & Debt

Any discussion on ‘How to set up a family budget’, will be incomplete without an article dealing with debt and debt consolidation.

Normally we use credit cards for a variety of good reasons, like convenience, business expenses, online commerce, instant accountability, unexpected bargains or expenses, medical and or other emergencies.

There are however, also very definite situations where plunging yourself deeper into debt is not a good idea at all:

• An expensive item you know you cannot afford (indulgence shopping). If you do not have the cash funds to purchase it, charging it is not going to make it easier for you to pay it! By putting it on plastic you just racked up the price and interest charges. Your budget will not thank you later for this one. Bad decisions often lead us down the wrong path. You will be left facing paying for this choice for a couple of years down the road still.
     
• Tele shopping or infomercials for gadgets and widgets.
      
• When grocery shopping, pay cash rather than plastic, or you will most likely overspend.
     
• Meals, drinks, nights out and other entertainment charges are all like the miscellaneous category in a budget. The balance and dues will just keep on piling up, if it is not tracked and monitored closely.
     
• If you are truly going to be budget-minded and money conscious while trying to get out of debt, consolidating or in debt-repair avoid the plastic!
     
• Check the interest rates on your card, consolidate accounts, go through the exercise of balance transfers et al. and seek the advice of a professional to assist and advise you, on how best to approach credit of any sort while on the mend to financial freedom, reputation, repair and recovery.
      
• For family budgeting purposes, credit cards are for EMERGENCIES ONLY and should not be used to pay for bills or luxury items. Carrying a high balance, missing a payment, paying less than the minimum or other faux pas, might negatively affect your credit rating and undermine all the other good work you were doing in your budgeting process.
     
• Watch out for steeper late charges, higher rates, annual service fees, interest rates and charges, and cash advances.
      
• Using your credit card at an ATM for a cash advance can sometimes not be convenient, as the rate and cash advance fees can total as much as 24% or higher. This is even more than loan sharks or other payday like loan providers.
      
• Do not use credit cards for any of the following reasons: unbudgeted expenses you cannot pay for; having no cash savings to help you with unexpected expenses, consuming more than you can afford or impulse shopping.

Debt management and family budgeting actually fit like hand-in-glove together. They compliment and strengthen each other if used appropriately and with caution, diligence and commitment to change.

It is advisable to get a handle very early on in your budgeting process on what exactly the debt situation is. For most people this is the most painful part of the process. Facing their monetary past and the aftermath of overspending, lack of budgeting and large debt!

Extreme care should be taken early on as well to protect your financial interest. Review your family budget spending categories and avoid debt by every means you can and not use it for living expenses.

Repaying your debt should be the main priority. Consulting with a financial planning and debt consolidation professional and specialist will help you answer the question whether you need to consolidate, transfer, stop using credit cards all together, file for bankruptcy or what your other options are. Exhaust all the possibilities before pursuing this route.

A personal debt review can be painful, but is very necessary to assess where you are now and how good or bad it is. What is the depth of the “obligation” category in your budget, where this will inevitably fall?

Debt is a wide concept, covering lots of things, including mortgage, car, credit cards and other retail credit card accounts and personal loans of any kind. IOU’s from family or friends also have to be included, if you are honest about making a difference, repaying in a timely fashion and truly want to know how bad it really is!

Your summary sheet can carry the following headings: account, total amount due, monthly payment, total interest paid last year, and interest rate. Financial advisors call this a debt review register. It is painful to see this data, because it will clearly show the impact of bad financial decision-making. Interest paid gives you absolutely NO BENEFIT WHATSOEVER!

Strategies for debt and cash flow management in a family budget include:

• Consolidating all consumer debt (that is everything you owe, except for your mortgage) and making it a priority to pay it off in a timely fashion, getting reduced rates and maximizing your effort in wiping the financial slate clean.
      
• Paying off high-interest credit cards first.
      
• Use a line of credit if you can as the interest rates are typically lower.
      
• Suspend any kind of spending on any credit card and establish good habits paying in cash for purchases.
      
• Use all store-based cards wisely or not at all, if that is the disciplined approach you have chosen.
      
• Store-based card often have no annual fees and you could qualify for them even with a low credit score – showing restraint and good fiscal management by making your payments on time, every time and keeping the account up to date, will go a long way to regaining your confidence and repairing your credit.
      
• Utilize the service of a good credit counseling service to assist you and deal with your habitual over-spending and shopping addiction.
      
• Use credit card statements for budgeting purposes for accuracy and tracking.
      
• Loans are handled no differently – the strategy is pretty much the same: find the highest loan balance and the highest rate and start paying the latter first.
      
• Avoid any new debt.
      
• If after a six month period you have paid like clockwork, contact your creditors and negotiate a lower rate at that time to ease the burden a little bit.
      
• Student and educational loans are approached as investments in your future and is a hybrid and shoulder debt category really. Loan-payback for all tuition debt needs to be included in your family budget. Taking a second job (evenings and weekends might be the answer here, while honing and practicing your skills and gaining some more experience as well!). This might lead to better business opportunity later and higher paying jobs later in life!

Take heart. Family budgets are not here to depress you even further. The fact that you are taking pro-active measures to participate in your life, sends the right signals, not only to creditors and credit counselors, but also to the family members that care so deeply about you too!

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by SolveYourProblem.com : 2008

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