Unfortunately, debt has become a way of life for many people. Everyone has to borrow money from time to time, whether it be for the purchase of a vehicle, a home, or some other necessity. Ideally, all bills would be paid on time, every month. However, for people who are living on a limited income, this is not always possible. It is important to prioritize debts and know which ones must be paid, no matter what, while still leaving money for food, clothing, and other daily living expenses.

Unsecured debt

Unsecured debt, to include high-interest credit cards, can quickly get out of control for those who are not careful about their spending habits. It is easy to get caught in the trap of maxing out one\’s credit cards and then only being able to pay the minimum payment amount each month. Doing this can become a viscous cycle where people are never free themselves from debt.

The best way to handle high-interest, unsecured debt is to pay it down as quickly as possible, while still leaving money in the family budget to use towards other necessities. Pay credit card bills on time if possible, and pay more than the minimum if it is allowable within the family budget. However, if paying these credit card bills puts the family dangerously low on funds for necessities, the credit card bills will have to be put on hold. Contact the creditor and let them know the bill will be paid as soon as possible and ask if they can offer a payment deferment or some other type of payment arrangements. It is also important to put a little money away in some form of savings account every month for emergencies. Once the credit card has a zero balance, put it away out of sight, to avoid the temptation to run up the balance again.

Emergency fund

One of the first priorities in personal financial planning is to establish an emergency cash fund. This money should not be used for any other reason with the exception of using it to pay a bill that cannot be postponed. This will provide some financial security for those unexpected emergency situations such as a medical emergency, car repair, home maintenance repair, or some other emergency situation.

It is ideal to have a savings fund established of at least three to six months worth of income in an emergency fund. If this is impossible, put as much money as finances will allow into the rainy-day fund. In order to be properly prepared for emergency situations, putting some money away into savings should be a top priority.

Secured Debt

Paying down the balance on secured debts such as auto loans and mortgage balances is always a good idea. This can help improve credit scores for future purchases. Even though paying down balances on secured debt can save money over the long-run, this also may not always be the best plan for families who are living paycheck to paycheck. If paying down secured debts leaves a family financially insecure, it may be best to only pay the monthly balances as they become due, especially if it is on a low-interest loan. This will free up cash to be used for monthly living expenses. Once the family\’s financial situation has improved, it is then okay to begin paying down secured debt.

What should you do about delinquent bills?

If unforeseen circumstances cause bills to become delinquent, every effort should be made to contact creditors and work out payment arrangements. Creditors have the ability to lower interest rates, offer deferments, or perhaps even settle debt for a lesser amount than what is owed. The worst thing to do is nothing, this can lead to the creditor suing in court. If the court rules in favor of the creditor, the judge can order wage garnishments. Wage garnishments will reduce the family\’s available cash even further. It is best to avoid the situation by trying to work out payment arrangements with creditors before the situation gets out of control.

Developing a monthly budget can help families who are working towards a more frugal lifestyle get their finances in order. There are some great tools online for help in preparing a budget, to include free online budget calculators. Paying down debt is not always easy and takes hard work and a lot of planning. Once debt is under control, developing frugal spending habits will help keep debts under control.

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Author Bio: If you would like to make better monetary decisions, see Money Saving Tips for financial topics ranging from the different types of budgeting to how to use wine as an investment

Category: Finances
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