Can you believe it’s February already? It seems like Christmas was just yesterday. Well, that’s probably because the bills from Christmas are now coming to a box near you. Slowly but surely, they start to pile up, one by one, stalking our every move from the cleared space on our kitchen countertop. It doesn’t take long for them to take on a life of their own, and the calls from the collectors start. It is not hard to see why so many people feel defeated and avoid speaking to the collectors. They don’t have the answers, they are not sure when they can pay, or how much they can pay, but avoiding the bills will not make them go away. In fact, it could make your situation worse.

By avoiding making payments or speaking to a representative about your situation, your credit can be affected, as well as legal action could be taken. You may be thinking “I can’t pay the full amount that is due, or I can’t pay the past due amount”. You are not alone in those thoughts. Third quarter numbers in 2020 showed that Americans have significantly high debt levels, totaling $14.9 trillion. Before I move on and offer some suggestions on how you can repay your debts in an efficient manner, let’s talk about a budget rule that can help you stay out of debt in the future, the 50/30/20 rule.

The 50/30/20 budget rule is pretty straight forward and can help you create and stick to a budget, and also help you along your way to paying off the debt that you currently have. The key points to this rule are:

• 50% of your take home pay (after taxes) should be spent on your needs
• 30% of your take home pay (after taxes) could be spent on your wants
• 20% of your take home pay (after taxes) should be put into savings

If your current needs exceed 50% of your income, you may want to consider downsizing your lifestyle. For example, you may need to cook at home more often, choose to carpool or use public transportation, or buy generic instead of name brand foods. In this category, your needs are: mortgage payment, car payments, groceries, insurance, health care, minimum debt payments, and utilities.

In the “wants” category, are the things that you spend money on that are not essential. This would include purchasing that new handbag or the latest electronic gadget, eating out instead of cooking at home, or going to the gym rather than working out from home. Basically, “wants” are optional items and services. .

And in our last category, are savings. Everyone should have an emergency fund. It is estimated that you should have at least 6 to 8 months of “needs” saved in the event of an unexpected event loss of income such as job loss or medical leave. Saving for retirement is an important step as individuals are living longer, so any investments that you make would also be included in this category.

So, now that we have talked about creating and sticking to a budget, let’s get you out from under the judging eyes of those bills on the countertop. First, take a look at the interest rates on your credit cards. You could check into doing a balance transfer to a credit card with a lower interest rate such as the balance transfer promotion that VacationLand Federal Credit Union is offering this month. You could also speak to a team member at VacationLand regarding possibly refinancing, and/or consolidating outstanding loan and credit card balances into one monthly payment. There are many options that may be available to help you, if you just pick up the phone and call us. It could be the first step to financial freedom.