So far, we’ve covered different steps you can do to take control of your existing debt. Now, it’s time to think about the future, and the purchases you are going to make a few months down the line.
The last thing you want is for credit card debt to sneak up on you again. With that debt comes possible interest charges, late fees, and stress — which you can avoid, if you take some time to plan ahead. Here are a few steps that you can take:
Anticipate your big expenses for the year.
You’ll be in better shape to save, and avoid further debt, if you know what your major expenses are for the upcoming year.
Think of the big events that arrive before you know it. Summer ends, and suddenly you need to spend money on school supplies and uniforms for your kids. You’ve driven your car another 5,000 miles, and you realize it’s due for a major checkup. The holiday season hits, and you only have your paycheck for December to use for Christmas presents, dinners and parties. If you focus only on your monthly budget, it’s easy to lose sight of these bigger events. The temptation then is to pull out your credit cards to make up the difference.
A simple list of yearly expenses can go a long way, in reminding you to save. Start with a piece of paper and a list of months. Ignore your monthly bills for now-they’ll remain constant throughout the year. Think of what it takes to run your life and take care of your family. Any expense that can’t be covered by a month’s worth of paychecks should go on this list.
Keep this list in a place where you are likely to glance at it often: your calendar, on the desktop of your computer, in your wallet. Now you have a clear, easy reminder of what you need to save for and how much you need to save when you’re out shopping or making financial decisions on the fly.
Understand how much debt costs you.
When you pay interest charges, you are paying for time – time you needed when you didn’t have funds on hand. As your balances climb, that time becomes more expensive. In some cases, time to pay off the balance on a car, or the balance on a mortgage, that time may be worth the costs.
In other cases, like extra presents you bought, it may not be. It’s easy to ignore fees when you pay the balances on your card, but this information can be useful for you. When you pay your credit card bills, be sure to note fees and interest charged for the month: highlight them, circle them in red, make sure they’re clear to you. They can help you decide, the next time you’re tempted to shop with credit cards, whether the time is worth your money.
Start automatic payments into your savings account.
You know what you’re saving up for, you know why you’re doing it: now you should make saving as easy on yourself as possible.
When you automate savings payments from your paycheck or your checking account to your savings account, you remove the temptation of spending what’s left of your paycheck. You also won’t need to worry about transferring the money yourself every month. Before you know it, you’ll have enough saved for the upcoming year.
Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.