A Guide to Managing Debts

Hoping to buy something that seems just out of reach? A car? A laptop?

In a few simple steps, you can reach your savings goal and feel good about achieving something important.

Determine your Goals and Develop a Savings Plan

• Decide what it is you want to save up for, and be specific. (IPOD, new car, computer, college, etc.)
• Do research into price and quality to make sure you are getting what you want.
• Write down the amount you will need to save. (include tax, insurance, etc.)
• Do a Budget to determine how much you can save each week or month, after all your expenses. (Be Realistic!)
• Calculate how many weeks or months it will take you to reach your savings goal.
• Stick to your plan and reach your goal!

Budget Basics

The sample budget includes most basic expenses, but you should also consider any tuition/fees, clothing, internet, television, bus fare, etc. that is specific to your situation. Feel free to fill in the blanks or create your own budget table to see how your finances look at the end of the month.

When creating a savings goal or attempting to reduce your debt, you should add the amount you need to save or extra you need to pay on a debt into the Expenses category to make sure you still have enough left over.

Debt Reduction

Reducing your debt follows the same steps as saving up for an important purchase, except that it will enable you to save more in the future by cutting interest costs. A quick trip to bankrate.com can show you how much you are actually paying when you purchase a $10,000 car at 10% interest for 5 years. (hint: you’re actually paying $12,748.23).

The calculators at bankrate.com can also show you how much faster you can pay off your debts and how much you save in interest by adding extra money to the payment each month.

To begin a debt reduction plan, first calculate your monthly budget. Then decide how much you can spare each month and add that onto your payment with the highest interest rate – usually a credit card. Use the bankrate.com calculators to see how much time it should take. After that first credit card is paid down, add the extra onto the next debt you are hoping to conquer.

If it seems that you don’t have enough to spare to pay extra on your debts, it might be time to examine your expenses and see what you can live without – see Helpful Hints for Saving Money.

Developing a Monthly Budget

A budget is a financial plan that lists someone’s personal income, minus personal expenses to come up with how much extra money is left over (or debt is created).

Income – Expenses = Net Income/Loss

Budget Spreadsheets

Microsoft and other companies offer many free budget spreadsheets.

Helpful Hints for Saving Money

• Don’t carry cash, credit cards, or your bank card around with you.
• Make it hard to spend, and you’ll spend less. Have as few credit cards as possible, and pay them off every month to avoid interest charges.
• Credit Unions or Banks can offer better interest rates than car dealers or payday lenders.
• Pay your bills on time – avoid interest and late fees, and keep your credit score up to give you better interest rates later.
• Eat at home instead of eating at a restaurant or getting fast food.
• Shop around before making major purchases–getting the best deal can save thousands down the road.
• Start having good financial habits now!