There’s an old song about love and marriage going together like a horse and carriage. You could also say that debt counseling and budgeting go together like a horse and carriage. Why is this? I read an article recently, which explained that debt counseling is only a short term solution and that it’s critical that you budget if you want to stay out of debt.
If you’re close to broke
The reason that many people choose debt counseling is because they’re hip deep in debt and practically broke. No matter how terrifying this might seem, there are things that you can do to budget even if you’re close to broke.
Request payment plans or extensions
A first good step is to contact all of your lenders and ask for extensions or payment plans to help avoid immediate catastrophes. Most lenders will be willing to work with you. If you believe you’re about to be evicted from your home or apartment, talk with your landlord but at the same time try to get extensions on your other expenses. This would free up money that you could use to stay in your apartment or house.
Prioritize your bills
Make a list of all your bills in order of which ones must be paid first. Next, set up a schedule for making payments on your paydays. If you have some bills that are already late, call the bill companies and ask how much you could pay back now to get back to a positive status. Tell them that you’re going on a strict budget. Be honest about how much you can afford to pay. While it might be tempting to promise to pay the full amount when you next get a paycheck, it may turn out that you don’t have enough money available to do this.
Don’t worry about saving 10% for now
While most financial experts will advise you to always put 10% of your income into savings, this can be seriously difficult when you’re living from paycheck to paycheck. You should really balance your budget before you begin saving that 10%. If you’re fighting off debt collectors, it just doesn’t make good sense to have $100 in a savings plan. You’ll just need to starve your piggy bank until you can alleviate your finances.
Review your credit card due dates
If you avoid making your credit card payments, this will only make the problem worse. As an example of this, let’s assume you have a $1000 balance on a credit card and your minimum payment is $40. If you don’t make that payment, you will be charged a $35 late fee. And the interest on your future charges might go to the default rate of 25%. This will make your credit card even harder to pay off.
Try negotiating your credit card interest rates
If you have at least decent credit, contact your credit card providers and ask if they would be willing to reduce your interest rates. You’ll never know if they would be willing to do this if you don’t ask. And they certainly won’t reduce your interest rates on their own.
Cut out unnecessary expenses
There are expenses you might think are necessary that aren’t. For example, it’s not necessary to have a drive-through latte every day or go to the movies three times a month. Also look to see how often you have spoiled food in your refrigerator. You should be able to redo some of these expenses, especially ones you wouldn’t really miss. If you find food spoiling before you can eat it, cut back on your fresh food purchases. Do some comparison-shopping and you might be able to switch auto insurance companies and get a cheaper premium.
Where to go for credit counseling
The best places to go for credit counseling are non-profit consumer credit-counseling agencies. These agencies generally charge either nothing or very little for their services as credit providers such as banks and credit card companies underwrite their costs. They usually have excellent relationships with lenders and can often even get your interest rates reduced.
Click here to read the full article about budgeting on Yahoo! Finance.