First of all, take a piece of paper and write down how much debt you have and how much savings you have now. You may wonder why how much savings.. well some people do have savings which are earning the pathetic 0.25 to 0.5% interest from the various banks, at most 2% but their debt are charging interest of 2.6% or even more a year. That's why we need to write them down and see what we can do about it.
Next, calculate how much you spent a month to figure out how much emergency fund you need to keep. The rest will go to debt repayment to gain from the savings in interest rate charged by the debts.
Calculate your monthly expenses to figure out what's wrong:
- Take a piece of blank paper with lines. Draw a wide left column (Desc) and a narrow right column ($) and label them.
- Divide the sheet into sections: Food, Transport, Housing, Parents, Utilities Bills, Credit Card Bills, Insurance, Entertainment, Loans, Savings or Investments
- Put all your Groceries, Dine Out and other food related expenses into Food category.
Look closely at dine out and see if you can cut this part of the bill. - Put all your transportation related bills into Transport Category.
If you have a car and your debt is just the car, consider changing to a smaller car or even sell the car, if it's worth selling.
If you are taking lots of taxi, try cutting down and take other types of public transports. - Put your rental / housing installment, and other housing related charges under Housing Category.
- Put the amount of money you contribute to your parents under the parents category. Add in the average mthly "bonus" or extra money that you give them either in lump sum or 1 time off.
- Put the phone, internet, tv license, water, electricities etc under Utilities Bill.
- Put the average monthly credit card bill that you need to pay under Credit Card Bill section. If this is the cause of your problem, pls cancel all your cards immediately. Cut them all up so that you won't use them. Start paying off these bills as soon as possible. You may want to use fund transfer to save on the interest for the time being and start paying them off using that fund transfer installments.
- Put all your insurances payments in monthly average terms under this category. If this amt is > 20% of your monthly pay, you may want to revise all of them and see if you really need them or if you should convert them into something else so as not to spend too much on them.
- Put all the money to buy presents and treats for others, watch movies, concert, buy CDs, DVDs, VCDs, wedding dinner, birthday party, house warming, KTV, etc under Entertainment.
- Put all your loans such as study loan, car loan, housing loan, etc well just the mthly amt you spend to pay them off in the Loan section.
- Put the balance of your monthly pay into the savings section. This amount must be positive if not it indicates that your expenditure is higher than your income. If there's a investment portion of it. See if the investment returns are higher or the debt interest is higher. If the returns are higher, perhaps it's ok to pay off the bills slowly. But please be reminded that not all the time, the investment returns will be this high.
Ok.. Deduct X from all your current savings and you'll find out if you lack emergency funds (Y).
If that's the case, try cutting down your expenses as much as you possibly can such that you don't compromise your life too much like leading a friguid life, just to scrimp and save that little amount to pay off your debts.
Look at your debts and loans amount now. Ask yourself, which is the loan that you wanted to get out of most. Write the amount down and devise a scheme on how to pay them off using your monthly savings 1st that's not supposed to be part of your emergency fund. If you lack emergency fund but yet u want to pay off your debt, in that case just keep about 1 mth worth of expenses and use the rest to pay off your debts 1st. Clear as much debt as possible so that you can get out of it soon. After which, the emergency fund will follow.
If you have the habit of buying stuff and you just need to buy them to feel satisfied, try transferring the amount of money that you intend to spend in the buying habit into a separate account. Use this money to pay off your debt at the end of every month. You will still get a type of satisfaction from it as it's your freedom from debt that you are buying now. Nothing beats that. Read other chapters as I furbish this site after you cleared your most wanted to clear debts. The whole point is in the desire to be debt free and not a is ok to have some debt type of attitude that you'll need in order for things to work out your way. It's your life. Live it the way you want it to be!
