Running a household and balancing a budget isn’t easy these days, and few people’s finances are up to the challenge; most people are dipping into credit to deal with mounting inflation.
According to the Federal Reserve, credit card balances increased by a record-breaking $46 billion earlier this year, the largest gain in more than two decades!
While a line of credit or credit card can help you smooth over rocky moments in life, filling in for cash when you don’t have enough, it can be a high-interest debt that ties up your budget for months or even years to come.
If you want to avoid piling on debt as inflation soars, you’ve come to the right place. Here are three rules that can help you manage your money like a pro.
Rule #1: Use a Budget
If you’ve been living without a budget so far, now’s the time to sit down and make a spending plan. With inflation nudging up the prices on everything in your life, it’s harder to wing money management and come out on top.
A budget helps you prioritize important spending, so you don’t waste money on things you don’t need.
Start by listing all your expenses, then split them into needs vs. wants. Anything that falls under your want category is fair game — cut these expenses until you free up enough cash to feel comfortable with your new cost of living.
Some expenses overlap, so it’s not always easy to tell the difference. Follow this chart for some guidance.
|A cellphone||Extra browsing data, the latest flagship device|
|Internet||The fastest package, fiber optics|
|Groceries||Takeout, gourmet items, meal subscriptions|
Rule #2: Always Pay At Least the Minimum When Things Are Tight
Most personal lines of credit and credit cards come with a magic minimum payment. As long as you pay this amount by your due date, you’ll keep your account in good standing — even though it’s a fraction of your outstanding balance.
When things are tight, make sure you hit this minimum payment; you’ll avoid late fines and bad credit.
Rule #3: Pay More Than the Minimum Whenever You Can
Did you run into a windfall? Did a utility bill cost less than you expect? Use this money to double down on your debt.
The line of credit experts at MoneyKey recommend paying as much of your balance any time you can. Paying more than this minimum may decrease the charges applied to your account.
Why? Most personal lines of credit and credit cards also apply interest or finance charges on any balance you carry over from one billing month to the next. Keeping your carried over amount low will reduce how much you accrue.
Check in with your budget to see if there’s anything you can cut to pour more cash into these accounts and reduce your balance. Ideally, you’ll want to bring your balance down to zero each month.
These Tips Can Help You Avoid Debt
Racking up debt might feel inevitable in times like these, but you can significantly reduce what you owe by following these rules. And remember, these tips have no expiration date — you can follow them long after inflation gets back under control to manage your money like a pro for years.
I am the content writer for Allblogsidea, where I love what I do. Writing is my passion; it’s what drives me in life. It makes me happy when people share their stories with the world so they can be heard.