Turn the Tables on Your Debt to Savings Ratio

Recent years have been tough on everyone; unemployment, the mortgage debacle, and rising costs on everything from food to gas have caused many of us to re-evaluate our budgets and learn to cut back.

One in four Americans has more debt than savings. A recent survey by Bankrate.com found that 25 percent of Americans have more credit card debt than they have in emergency savings. Yikes, that is definitely a scary statistic. But, you don’t have to let it happen to you!

While credit card debt may take some time to get out of there are lots of things you can do right now to turn the tables on your debt to savings ratio.

Set Financial Goals

Goals help to keep us focused and give us something to strive for. It’s a good idea to set short-term goals, which you can accomplish within one year, and long-term goals, which can take five years or more. When setting financial goals be sure they are realistic, measurable, and achievable.

  • Realistic & achievable. A realistic goal may be to pay off a $5,000 credit card balance in two years. Paying off a $500,000 credit card balance in two years is not realistic or attainable in most cases.
  • Measureable. A measureable goal is one you can track along the way. Such as a commitment to save $20 a week for your emergency fund. Don’t leave savings to circumstance or you will never achieve your savings goals.

By setting goals you are making a commitment whether it is to pay off debt or add to your savings you give yourself something to strive for.

Discretionary Spending

This is one area we hear about all of the time. The problem is many of us don’t realize how much discretionary spending is hurting our bottom line, until we make the effort to actually track our daily expenses.

Track your daily expenses for a month. You may be surprised to find out how much you spent. The little things add up.

For example: 

 

Approximate
Item Cost

Cost
Per Week

Cost
Per Month

Cost
Per Year

Cup of coffee
Five days/week

$1

$5

$20

$260

Pack of cigarettes
Seven days/week

$4

$28

$120

$1,460

Eating lunch out
Five days/week

$7

$35

$140

$1,820

Dinner out for two
Two days/week

$40

$80

$640

$4,160

So in this example the yearly amount spent on these “non-essentials” ads up to a whopping $7,700! You know what I am going to say, that would make for a very nice emergency savings fund for most of us!

I am not suggesting you cut out all the fun stuff, but chances are there are a few things you could cut that you wouldn’t even miss.

Eliminate that Credit Card Debt

Many of us struggle with credit card debt. It started with one card, and then you began using another card to pay the balance on the first card and so on. It’s a vicious cycle and tough to get out of. If you’re only paying the minimums each month, it can take you forever to pay off your balances. If you pay even a little more than the minimum each month you can make a huge dent in that credit card debt.

For example:

 

Approximate
Item Cost

Cost
Per Week

Cost
Per Month

Cost
Per Year

Cup of coffee
Five days/week

$1

$5

$20

$260

Pack of cigarettes
Seven days/week

$4

$28

$120

$1,460

Eating lunch out
Five days/week

$7

$35

$140

$1,820

Dinner out for two
Two days/week

$40

$80

$640

$4,160

By making a conscious effort to pay “extra” each month on your credit cards you will not only reach your goal of debt freedom sooner you will save thousands in interest. If you need help finding the “extra” amount that works for you, consider consulting with a debt consolidation company.

Times are tough for everyone but by making smart decisions you can turn the tables on your debt to savings ratio.

Do you have more credit card debt than emergency savings?

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About Suzanne Cramer

3 Responses to “Turn the Tables on Your Debt to Savings Ratio”

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  1. When we were trying to get out of our debts, we decided to pay off the credit card and bank loans first. Of course, we also reduced our “unnecessary” expenses, such as cable TV, landline phone (because most of our communication are done via internet and cellphones), and coffee. We add every centavo we save to the payment we need to make at the end of the month. Soon, we were able to pay off one of the credit cards. The part of the budget that used to pay for the previous credit card was divided into two, half of it was added to the payment for the other credit card while the other half was added to our emergency savings. It was difficult but it was a big sigh of relief after paying off one debt after the other.

  2. Penny says:

    Wondering how many people actually told the truth in that survey. I can’t believe only 25% of the people had more credit card debt than savings. With all thats happened over the last few years in the economy I would expect that number to be much higher. And I also wonder if you had more in emergency savings than credit card debt why you wouldn’t use that savings to pay down that credit card debt. I mean I could see if it was just savings as having money in a 401k or something like that doesn’t make sense to use it on credit card debt, but emergency savings? I realize the poll wasn’t very scientific, but I’m glad to see that most of your article was based on how to save money.

  3. Barbara Delinsky says:

    When people are drowned under debt, the first thing they should do is to forming a budget. When forming a budget, list all the sources of your income as well as expenses. If the latter is more than the former, cut down on the unnecessary expenses, such as cable connection, dining outside, going to movie theatre and others. Doing so can help people save money with which they can pay off the debt and come out of the obligation. Once you pay off your one credit card, contribute money towards paying off the other. This way, you can take a deep sigh of relief by paying one debt after the other.

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