Lyle Gramley, former Fed governor and economic advisor, says that “The financial crisis has been an enormous wake up call [for consumers].” Recent data more than confirms this trend. Consumer borrowing and spending have contracted. Consumers are taking the funds that are ordinarily spent and turning them into savings. Interestingly, this happened last month even while some metrics of consumer income inched upwards.
A crescendo of the economic trend was reached in May of this year, when the savings rate hit 6.9% – the highest in 15 years. But the treble in the data did not stop with the numbers on savings. Credit card delinquencies also hit a high, peaking since 2005 at 4.75% of consumer credit card accounts as 30 days overdue for payment.
The data is dizzying, but what is a consumer laden with debt to do? Regain forcus with some simple math and a straightforward, no-nonsense game plan:
- Set aside an entire evening to sort through finances. Can’t find the time? Consider the amount of stress reduction that will occur as a result of a clear game plan to step out of a financial mess and it will be worth an evening of cancelled activities.
- Understand your existing debt. Dig up the documents, call lenders, and know the current debt balance on each account, the interest rate, and other key repayment terms and penalties. Don’t fret over finding it on last month’s bank statement – simply call the lender and ask them point-blank.
- Set a priority for debt paydown. Credit card debt tends to be top priority, but each individual is different. The guiding goal is to eliminate debt as quickly and efficiently as possible.
- Set up a monthly budget. This is so essential to financial success because it allows you to see clearly on paper how exactly debt is going to be repaid. Trim from discretionary expenditures without remorse: there are a million different low-cost activities you can do to enjoy life. Research them on the Internet.
- Research and find out your credit score for free with the major rating agencies. A bad credit rating can be hurdle to paying off debt, getting better terms on debt repayment, securing low-interest loans to pay off high-interest obligations, and even to landing a job. Dispute any negative items on the report that should not be there.
- Cut up credit cards, renegotiate your interest rate and other terms of debt repayment, and join the masses of American households that are trimming back the spending beyond their means.
- Choose the frugal option for all areas of your spending needs to save a bundle.
- Track your spending, saving, and financial picture with free tools. DebtGoal offers an excellent organizational tool that is intuitive, easy to use, and noted for its debt paydown optimization capacities.
What steps are you taking to get back into financial shape?
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
Tags: consumer financial management, debt paydown record, financial savings, savings record, spending record
