REASONS WHY YOU CAN’T PAY YOUR BILLS
I have to say when I was coaching my client this is one thing she was NOT guilty of. She did not hold too much debt. She had just the loan for her car and a gas credit card that she appeared to pay off monthly. This can be a real kicker though.
To calculate your debt to income ratio take your total debt (student loans, auto loans, personal loans, mortgage and credit cards) and divide it my your gross monthly income. This number is important to you for many reasons. If you would like to some day buy a house a bank will be looking for a debt ratio of 36% or lower. The lower this number is the better and the higher this is, you are likely having a hard time meeting your obligations. So what do you do if you come up with a high number?
There are a number of things you can do to solve this issue. First, you must make a real effort not to incur any more debt. Borrowing Peter to pay Paul is just not going to work. You MUST ask yourself when spending money if it is on a NEED or a WANT. It seems pretty simple, I know but so many of us have a hard time with this. A need is food, shelter, health care, transportation. A Want would be an item you don’t really need, like a Dunkin’s coffee on the way to work or that expensive cut of beef at the grocery store. If you have not created a budget yet of course you REALLY need to do this. If you do a good job with that I bet you will find you can meet your needs with some money left over. From there you need to not SPEND what is left but use it to pay down debt.
You might consider a few things to help you with getting your debt down faster. If you can pick up overtime at work then do it! This one can be tricky though, DO NOT depend on overtime to pay your regular monthly bills because if that money suddenly goes away you obviously won’t have enough for your budget. Overtime should be used to pay down debt, be used to create an emergency fund or be put into a savings account. You could pick up a second job. If you made just another $50 dollars a week, that is about $200 dollars a month you didn’t have otherwise! Once again, be wise in how you spend this money! Getting a second job might put a real dent in your social life and lead you to a higher level of exhaustion as well as a lower level of happiness. Do it for the right reasons and do it to help yourself get back on track. If you need a second job to just make ends meet it might be time to evaluate your “ends”. Look closely at your housing costs, your utilities etc. Can you really afford to live where you are? Do you need to find an apartment that is smaller and with heat included? Can you cut out the cell phones? Can you cut the cable and internet? It can seem like these things are “needs” but they really are not.
Perhaps instead of a part time job you can start a “side hustle”! Are you a good writer? There are a number of sites that will pay you for your work. Sign up for www.freedomwithwriting.com, they will send you all sorts of information about blogs that pay you for posts, what magazines are looking for writers etc. You could do photography, officiate at weddings, drive for uber, babysit, tutor or any number of things. Think about your strengths and what you can provide. Consider making crafts and sell them at craft shows. In this way you can decide when you work and when you don’t. Be your own boss and make a bit of money on the side!
It might not be a bad idea to review what your tax deductions are, what your contributing to your 401K. It doesn’t make any sense to be putting a large chunk to your retirement when you can’t make rent on a monthly basis. This is something you could change temporarily, until you pay down the debt. There is a worksheet right on your W-4 that should help you determine what your deductions should be. If you are getting a large tax return every year you might think that is good but it really isn’t. You could be making interest on that money by having it be invested etc. To understand why you should do this I suggest you read this. https://blog.wealthfront.com/compound-interest/
At the end of the day if your debt ratio is too high, you need to work on paying down that debt in any way that you can. It might mean a combination of the things I have talked about, it might mean changing jobs so that you can earn more. It might mean doing that side gig or significantly cutting out all those extras. There is nothing worse to ME then the stress on a regular basis of not being able to meet your obligations! I have been there, it is miserable and I work hard to make sure I don’t ever get into that situation again!