For the most part, debt is not a foreign concept to the average American household. It is a reality. Unfortunately, bills appear to be coming in faster than paychecks can cover them.
This issue is one that many of us have been struggling with for years. There has definitely been a tightening in the job market as fewer opportunities are available to meet the burgeoning demand.
However, there are ways and means of confronting these financial challenges in an effective way.
We are living through a time where inflation is negligible and interest rates on loans are at multi-decade lows. The US is expecting an interest-rate hike on 14 December 2016. The Fed FOMC (Federal Open Market Committee) will likely raise rates by 25-basis points before the year is out.
That will mean that the official federal funds rate (FFR) will be 0.50% – 0.75%. According to the latest CMEGroup FedWatch tool, the likelihood of interest rates rising by 25-basis points is now 76.3%. That is substantially higher than the rate on Friday, 4 November 2016 (66.8%).
Higher interest rates are coming – what does this mean for everyone?
Simply put, a higher interest rate raises the return you get on invested money. Things like fixed-interest-bearing bank accounts (certificates of deposit and savings accounts) will benefit marginally from the rate hike.
However, banks will be raising the rates of interest they charge on loans. Banks make their money in this way. If you are looking to acquire a mortgage, a car loan, or a basic loan, now is the time to shop around before rates start rising.
The cost of credit is directly proportional to the rate of interest that is paid on it. The higher the interest rate goes at the federal level, the more banks and financial institutions will charge.
Equities have been poor performers in 2016, and analysts advise folks to diversify their portfolios with a wide range of financial instruments. These include 10-year Treasuries, equities, store-of-value commodities like gold and silver, property and cash. Naturally, your ability to invest in any of these assets is dependent on your personal disposable income.
If you are paying too much to service your loans, you don’t have enough to put away for savings or retirement.
How to pay off your debt with limited cash flow?
When it comes to debt, many people think of credit card obligations. A great way to put a debt plan into play is by tracking your monthly expenses. In fact, the best way to do this is over a 3-month period.
Write down all of your purchases – no matter how small. You will be surprised how quickly those Starbucks drinks add up at the end of the month.
Next up, create a budget. Budgets allow you to allocate funds towards different categories of expenditure. Budgets for school, food, transport, entertainment, healthcare, vehicles, home and the like need to be created.
In your budget, you will see many non-essential items. These may include a spa membership, an expensive Internet or cellular phone contract, membership at Universal Studios or Disney World, and similar items. Are these essential?
If you can save money and divert those funds to pay off your credit card debts, you will be much better off. Many folks assume that their electricity bill and the water bill are fixed expense items. Nothing could be further from the truth.
Electric shavers, unused computers and television sets, toasters, Panini presses, floor lamps and other items chew electricity. Unplug items that you don’t use, turn off the boiler and the AC when you’re at work and watch your electricity bill come down.
Of course, your most expensive cost item is your rent, or your mortgage. Is it necessary to pay as much as you are paying? If you can save money by moving elsewhere and maintaining a similar standard of living – do it.
It may sound archaic and unappealing, but paying for expenses with a cash budget is far better than breaking out the plastic every time you go shopping. The problem with credit cards is that they are too easy to use.
Apply for a low-cost credit loan to tide you over
For folks who are in search of a loan – sites like CreditLoan offer many options to choose from. Online aggregators provide you with a listing of the most competitively-priced lenders and their terms of service. After you have been granted approval for a loan, you will likely want to pay it off as quickly as possible.
A second job or a part-time job with passive income is a great way to supplement payment of your credit loan.
House sitting, pet sitting or dog walking are easy ways to add some cash to your wallet. With extra money in hand, you will want to pay off all your high-interest credit first before directing resources to your low-interest credit bills.
If you pay the bare minimum on your credit card repayments, or your loan repayments, you will be paying bills for many years to come. Always pay the minimum + and shorten the payback period.
Of course, you will want to check for things like early repayment penalties on your bills.