In a society driven by lifestyle excesses, becoming financially fit by eliminating debt is very difficult. However, with determination and discipline, as well as by employing the right methods, it is possible to achieve that elusive goal. Considering that an average American household has a debt of $18,700, a figure that is increasing by the day, it does come as a shocker that 59% of the population claim to be maintaining household budgets. The increasing debt levels are an indicator that American families are spending more than what they earn, and household budget management techniques are obviously not effective.
Common Reasons for Not Maintaining Household Budgets
A large number of families report that they did not bother about budgets since they perceived it to be too difficult, too confusing or taking up too much time. Among the other reasons cited for not maintaining budgets is that they lose momentum as the year progresses, and it can be quite difficult to stay within a set budget when two or more people are spending the available money.
Agreed, that making and adhering to budgets can be quite tricky in the absence of adequate information or proper tools. However, application of modern technology can make it more intuitive and less time consuming. By putting a plan together and then using the right tools, it is possible to contain your spending within your income and eliminate the debt in a comparatively short time.
Envelope Budgeting – Makes Life Easier
Among the principal reasons why household budgets fail is because there are numerous people taking out money from multiple accounts. The envelope budgeting system takes into account the involvement of multiple people in the making of the spending plan and everyone is able to see the extent of the money available and the period for which it has to last. There are a number of online applications that make this system easy to implement, and eliminate the pain of manually tracking purchases, recording transactions, and balancing several accounts. You can also consider a process following which you may consolidate credit cards that you possess so that you do not have to track multiple accounts.
The process starts with the determination of the total monthly payment that can be made towards repayment of the debt. Every time a debt is paid off, the sum being paid monthly is added to pay off the debt next in the list. This mechanism accelerates the debt repayment and ends when all the debt is eliminated. By paying the same monthly amount, it may be possible to eliminate the entire debt in as little as seven to eight years. The process works faster when you start with repaying the debt with the highest rate of interest.
Steps Suggested For Debt Elimination
To start off, it is necessary to make a list of all the outstanding debt with all the details such as the current outstanding, interest rate and the intended monthly payment. Start the list with the debt that carries the steepest rate of interest, and carry on to the lowest one.
The second step is to check the amounts allocated to the spending accounts. Each month the debt payments will be made from the created spending accounts. After the first debt is paid off, you are required to add the monthly payment you were making on the retired debt to the monthly payment being made on the debt second on the list.
The third step consists of accelerating your debt payment by including any savings that you are being able to make on a monthly basis from your spending accounts. Most often, people following this system have been able to save around 10% that they can plough back into the debt repayment exercise.
Author bio: Mark Conley is a credit analyst for a leading financial institution. He writes for a weekly column offering personal finance advice. He suggests his readers consolidate credit cards for easy debt monitoring and management.