Budgeting, Spending and Debt Management - Part One

Are you one of many who far outspent your planned budget this holiday season? If you stayed within your planned spending budget then huge congratulations are in order. If you went over your spending budget however and are getting ready to face the consequences then read on. In fact, if you are living debt free and loving it then there really is no need for you to read the rest of this article.

The goal of this article is to not only help you overcome your new holiday debt, but to provide information to help prevent a recurrence and help you manage your finances in the future. We provide a few outlines detailed steps to help you manage your debts, budget your money and spend it wisely.

Avoid credit card purchases:
The bottom line is that by using your credit card to pay for items, you will end up paying more in the long run. Depending on the interest rates being charged and the amount you are able to pay on monthly payments, you will spend anywhere from 10%-60% more on credit card purchases. To use an example, lets say you are out shopping for a new flat screen TV and have narrowed down your search to 2 sets. TV #1 cost $2,000 and TV #2 cost $3,000 (its a “better” name brand). For whatever reason, you decided to buy TV #2 with your credit card that has an interest rate of 20%. By doing this, the reality is that you didn't buy the TV for $3,000. If you make minimum payments on the card (and this is the only debt on the card), you just purchased your new TV set for a little over $10,000. Even if you made more than the minimum payments per month you will still end up paying way more for the TV set by purchasing it on credit. Whenever you shop with a credit card it will help if you keep this in mind, the price tag you see will not be realistic unless you pay in cash upfront. Not many of us will walk into a store and willingly pay $10,000 for an item costing only $3,000, but yet a lot of us unconsciously do it everyday.

Pay Cash:
This brings me to another important point, if you must pay, pay cash. Pay for items with cash or with a debit card when you don't have cash on hand or wait until you can afford an item and pay in cash when you buy. If it is an emergency spending then use a designated “emergency credit card” and pay off the balance as soon as you are able to. In general be cautious of debit card payments and be mindful of the dangers of having your debit card (or credit card) information stolen while making purchases.