When the bills come flooding in and pay day still seems like the date that never happened it can be all too easy to bury your head in the sand and hope it all goes away.
If you're feeling the post-Christmas pinch and the urge to splurge in the January sales is all too much, it could be time to deal with your debt head on - the earlier the better.
You money problems might not be down to your shoe-shopping habits alone. Perhaps you've landed in a difficult circumstance, a separation or job redundancy, but whatever the issue there are ways and means of making your money count and taking control of your cash crisis.
We spoke to Justina Rosu, Owner of Her Money Matters, to find out how to go get the personal finance thing down pat.
Check your account
Whether you sign up for paper statements or you bookmark your bank account it's a good idea to keep tabs on your spending. That way you know exactly what's coming in and what's going out.
Justina says, "Regularly check all your account balances so you have the opportunity to adjust your spending accordingly. This will keep you out of the red and prevent fines building up. If you don’t keep a good eye on your accounts, you will find yourself falling behind and then living on your overdraft and very quickly you can find yourself in a debt spiral."
Separate your bills from your spending money
A lump of cash sitting comfortably in your account can make guilt-free card purchases all too easy and before you know it your wages are spent. Justina advises separating your money to cover all your outgoings so you'll never be left short again.
"Set up an account especially for your bills and have all direct debits taken from this account. Know your full monthly contribution towards all your bills throughout the year and put this amount in your ‘bills’ account each month.
"Ensure that the money left in your spending account (usually your checking account) is un-allocated money. You spend what you see, so make sure you don’t see the money you need for bills."
Are credit cards the devil in disguise? Are you shooting yourself in the foot just to get a decent credit history? Justina has some top tips:
"Make sure your credit file is accurate by ordering a statutory report from Experian or Equifax. You want to give yourself the best chance of attaining the lowest interest rate credit card. By making sure your credit rating is the best it can be, you give yourself the best chance!
"Only use your card if you are sure you can pay it back in full. Falling into a minimum payment trap can escalate into unmanageable debt at a fast rate.
"Don’t allow your card limit to be pushed up and up by your bank. Decide what limit suits your lifestyle and make sure the bank only gives you this, and it stays at the same rate."
Remember those college pals who shopped rather than studied, well they're probably still shifting that hefty student overdraft they racked up - not such a good example of living within your means. But having an 'emergency' overdraft - now that's money-wise but how do you resist the urge to shop?
"If you just want an emergency card, decide what amount would feel secure for you to have access to. Make sure this is your limit and no more. Then wrap your card in paper and tape the edges. This becomes a difficult card to use, even when it's sitting in your wallet."
And if carrying it around with you is playing with fire, stick it in the freezer and make an ice block out of it.
Rebuilding your credit
Late repayments, defaults and fines can all seem like the black marker against your name but there are ways of dealing with a bad credit history and rebuilding your reputation as a potential borrower.
Justina explains, "Don’t pay for a credit repair company. There is nothing they will do that you can’t do for yourself! These are the ways to rebuild your credit:
- Make sure you have correct name and address details on your credit report - the slightest error will flag possible security risks, and mark your credit rating down.
- Make sure you are on the electoral role at the correct address.
- Always pay your debts on time.
- Have a debt history - it sounds odd but if you have never had any debts this will go against you. Think of your Credit Report as a job application, if you have never worked how does the potential lender know you are a good client?
- If you have a poor credit rating take on a pre-paid credit card. With this you do eliminate the worry of paying back the card each month, with the bonus of building your credit rating at the same time.
- Many banks have credit cards specifically designed to rebuild a poor credit rating. Unfortunately, the payoff is that these are high interest rate cards. But, the idea is that you use the card only a little and pay it back on time (set up a ‘pay in full’ direct debit). By going this route, you are building a history of regular payments – bingo!"
Respect your money
"Respect your money and your money will respect you. Make sure your ‘business’ is taken care of, this all sounds very boring when you're first starting out in your career but I cannot emphasis strongly enough how important these are:
- You need to have your pension. Join your work scheme, but make sure you understand it and keep the paperwork, so when you leave your pension doesn’t languish unclaimed.
- Be responsible and have your insurances in order - home, car, home contents, pet and personal possessions. If your prized possession is that Gucci watch, does your insurance cover it?
- Life cover: life assurance, critical illness cover and lasting power of attorney. Make sure you have your bases covered. Don’t leave things to chance.
- Job security is almost a long lost memory, so working towards having 3-6 months of savings to cover your living expenses is highly recommended. Of course, you need to make sure you have cleared any debts before you start saving – make your money work as hard as you do!
- If you have savings and feel confident then the final path to a stable financial future is investment. Your money will grow larger and faster when it is invested."
Investing your cash isn't just for the wealthy, almost anyone can start with a little and wind up with a lot. Justina says, "I believe there are three key areas which are the best places to invest:
- You - grow your own skills and invest in your own education professionally and personally.
- Paper - stocks and shares, bonds etc, unless you are in this industry or have the time to learn about it you will need a broker.
- Property - by being wise and not greedy, there are still great gains to be made in long-term property investment."
Putting a little money aside each month can only help matters - those Jimmy Choos won't buy themselves now!
Help and support
It's worth knowing that there are people and places to turn to for support when you're going through a debt crisis. Take a look at the Office of Consumer Affairs' online tool that offers suggestions and options for getting yourself out of debt: Take Charge Of Your Debt.
Got any more tips for dealing with debt? Tweet us @wewomenCA