Which way is right? When it comes to finances, most of us think in small steps. We pay our minimum credit card payment each month. We save $25 a month in an emergency fund because we make a modest income. Positive, baby steps are definitely a step in the right direction, but there are times when you need to take more drastic measures, especially if:
1) You owe more than $10 000. If you owe more than $10 000, you are likely paying significant money in interest – money that you could be using or saving for retirement. Paying down your debts should be a top priority so that you don’t overpay.
2) You are getting collection calls or are behind in your bills. Falling behind on your debts ruins your credit rating and adds a lot of stress to your life. If you are relying on payday loans or are behind on payments, you need to take more drastic steps (such as significantly reducing spending or getting a second job).
3) You rely on payday loans. If you get a few payday loans a year or roll them over month to month, this is a red flag sign that your finances are out of control and you need to make big changes to start living within your means.
4) You have lost your job. If you have lost your source of income and have debts, you are going to have to act fast to save your credit rating and maybe your home.
5) You have no savings or emergency fund. With no cash saved up, you’re in a really vulnerable position if anything goes wrong. For at least a few months, you should go into super-saver mode to start building up at least your emergency fund.
6) You’re not making progress. If you’ve been making minimum payments on your debts and not seeing any significant progress in paying them down, it’s time to take a more drastic approach. You may need to cut back on expenses, find ways to increase your income, or seek professional financial help to develop a debt repayment plan.
7) You’re living paycheck to paycheck. If you’re barely able to make ends meet each month and have no money left over for savings or unexpected expenses, you need to take action to break the cycle. This may mean finding ways to increase your income, cutting back on expenses, or seeking financial advice to develop a budget and debt repayment plan.
Overall, it’s important to take a hard look at your finances and identify when more drastic measures are necessary to improve your situation. Whether it’s paying down debt, building an emergency fund, or finding ways to increase your income, taking action sooner rather than later can help you achieve financial stability and peace of mind.