After the financial meltdown that began in 2008, many people found themselves out of work for an extended period of time. President Obama has proudly pointed to the fact that many of those displaced workers have found new jobs and are leaving the unemployment roles. What is only mentioned in hushed tones has been brought to the forefront by a recent story by Reuters. More and more Americans are taking jobs that leave them living in near or below the poverty line of $22,811 for a family of four. In total, there are currently 10.4 million families, or 47.5 million people, living on less than $45,000 a year, which marks the government’s official ”near poverty” income level. That is an increase of five percentage points over pre-meltdown figures.
At the same time, families have taken on an additional $2 billion in credit card debt in recent months. That brings up the question whether or not families living in near poverty have the ability to pay down their debts in an effort to improve their lives. Yes, it is possible and here are a few tips to help inch toward that goal.
Goals And Expenses
A key element to any debt reduction plan, whether it is on a corporate scale or in the poorest of homes, is to define a realistic goal. Even if your debt reduction goal is to not ad more debt, you have a defined goal. The most important thing is that you goal is realistic. If you are living on $23,000 a year, paying off $5,000 in debt in one year is not going to happen and you will become discouraged if you try.
Once you have defined an achievable goal, start tracking your daily expenses. Perhaps one tongue-in-cheek blessing of having lower income is that there will be fewer to track, making the whole thing easier. Be sure to account for your bills, gas, food, etc. Everything you pay for should be written down somewhere.
The family budget can be a daunting task, but it will help you reach your financial goals. Start with your monthly bills. Account for each of them and not the due date as well as the amount in your budget. You may be able to save a few bucks each month by paying these bills on time each month and having a visual reminder of the due dates should help you with that. Be sure to account for an average amount for groceries. If you are receiving government assistance with food, you should still account for groceries, but do not need to include the amount in your cash total for the pay period. A weekly amount for gas has to be part of your budget, as well. After that, tailor the rest to your personal needs. Do you have medical bills or are you paying for braces? Be sure to account for every expense that consistently appears in the expense log mentioned above.
Areas To Save
After forming your budget, you may be pretty sure that you are spending way more than you are making. When I first started to budget closely, I noticed that I was laying out $250 a month more than I made at a minimum. That explained the $10,000 in credit card debt that I had. Quick areas to cut back in may be staring right at you in your expense log, maybe not. If you see an easy way to save, do so. If not, have a look at your monthly bills. Start with the obvious like a home phone that you do not need, then move to your cellphone. Can you cut your data plan or even trade down to a phone that does not need a data plan? Would you be better off with a pre-paid phone?
After you have looked over your communication needs, look at your insurance policies. What are your deductibles? If you have a $250 deductible for auto insurance, can you raise it to $500. Anything higher than $500 and you run the very real risk of not being able to cover your deductible in the event of an accident. Do not forget to shop around once a year. You may be surprised by what other companies are offering. Other areas to look at are your personal habits. Do you smoke, drink, like to eat out? IF so, just limiting those habits can put a few more dollars in your pocket.
You will find it nearly impossible to pay down your debt if you do not have money in savings. That is my humble opinion, but here is why. If you can not put money into savings and leave it there, you are still living beyond your income. If you are living beyond your income, you will not stick to a debt reduction plan. Start small. Just the loose change in your pocket. Put that coin in a jar every day after work and deposit when you cash your check. Yes, it is a little embarrassing to deposit less than five dollars, but only in the beginning. Think of it like this, what is more embarrassing; depositing less than five bucks or having no savings at all?
Pay Down That Debt
After forming a budget, paying your bills on time, and being able to leave cash in your savings account, it is time to start paying down your debt. Start by picking one. Do you want to pay down a credit card, pay off a car loan, or get the payday loan monkey off your back? The debt itself isn’t as important as creating a plan to attack it. Credit cards are simple. Pay your minimum on time, then pay any affordable amount on a different payday. The hard part is not using that credit card while you are paying it down. Auto loans are can be paid down by adding 1/12 of a payment to your monthly payment. That way you are paying an extra payment each year. The payday loan monkey can be the hardest to kick. The only realistic way is to shave your re-borrow each time. Drop back by $50 every time you re-borrow. That means that you will have about $65 less each time($50 plus $15 interest). That is going to be a struggle for sure, but it will be worth it to not have to borrow from them again. Unfortunately, the poor and near poor are who these companies prey upon, touting their services as a smart way to cover unexpected expenses. In reality, they only keep worsen your financial position.
Paying down your debt if your income places you at or near the poverty line is possible. The going is tougher and slower the lower your income is, but you can do it if you follow the tips above.