Consumer debt rose to $57 billion in 2014, a record since last year, marking a 47% increase from 2013. Fortunately, I’m not one of those Americans who responded to the good economy by spending money I borrowed from credit cards to live beyond my means.
Today, I’m pleased to report that I am increasing my wealth, not decreasing it. This wasn’t always true for me. Before the 2007-2008 financial crisis, I spent more than I earned, especially when shopping for things that provided instant gratification.
Here is the story of how I turned my finances around when I had high debt.
Debt Restructuring
Initially, I tried to simply pay off my credit card bills as they came in. But this was difficult to do because I had been in the habit of applying for new credit cards after maxing out on the ones that I had been using. Consequently, I received a regular stream of credit card bills every month.
Since they were different amounts with different interest rates, I spent a considerable amount of time and effort keeping up with my finances. Gradually, I fell behind in my bookkeeping, either not paying them on time and incurring late fees or just paying the minimum balance and incurring high-interest rates.
Although I stopped using my credit cards altogether, my debts continued to increase because the credit card companies were now charging interest on the interest. This compounding effect meant that I now paid less on the principal of my debts.
Then something fortuitous happened, something that pulled me out of my despair because I had come to a point where I couldn’t pay down my credit cards fast enough with my current salary. A friend directed me to read a review article about Brice Capital, a debt consolidation company.
The consolidated loan I received allowed me to pay off all my credit cards completely. Suddenly, I only had to write one check a month, an affordable amount to repay the loan.
Controlling My Spending
After finally getting a handle on repaying my debt, I realized that the reason I got into debt in the first place was because I only had a vague idea of how much I was spending each month.
I entertained a rather simplistic idea about personal finance: If I had money in my checking account, then I believed I could afford to buy anything that did not wipe out my bank balance.
So, for example, if I had $400 in my bank account and wanted a pair of high-end sneakers that cost $250, I thought I could afford them. I naively assumed that by the time my next bills came in, important bills for the phone or rent, I would have earned another paycheck to make up for the amount I had spent on the sneakers.
What I failed to consider was how much I spent on small things, such as the money I spent at coffee shops when hanging out with my friends, buying snacks when grocery shopping, paying for a day’s parking at a parking lot, and other such miscellaneous daily expenses.
Unaware of how to get a grip on my spending, I asked my friend, the same one who had tipped me off about Brice Capital, about what to do. He suggested I sign up for a personal finance podcast.
I still remember the day when I was driving to work listening to the podcast on my smartphone. That particular day, the host talked about how to create a zero-based budget. I was so thrilled by the idea that I pulled off to the side of the road to make notes.
Essentially, this budgeting system helps you figure out how to spend your money as soon as you receive your paycheck so that you can easily cover all your bills every month and tuck any surplus cash into a savings account. I hope this explanation of how to restructure your debt and control your spending helps you on your personal finance journey.
