One way to see what you spend is to track your expenses for a week. Either have a small notebook that you keep track of everything you spend money on. Or keep track of your receipts and add them up each evening. This helps you see what you spend money on and which expenses may be able to be cut. It shows how small expenses can add up to larger ones.
It’s important to watch large expenses but it is just important to keep track of smaller expenses. A dollar or two here and there can add up to be larger expenses. If you find expenses you can cut, you can apply that money to pay off your debts.
On the other hand, just adding a little more to the minimum amount due on credit card payments can make a big difference. As an example with a balance of $3,000, the minimum payment due is $90. Making that payment, it would take 11 years to pay it off and you would end up paying an estimated total of $4,745. If you increased the payment to $103, you could have it paid off in 3 years and pay a total of $3,712. By paying an extra $13 a month, you would save $1,033. Many people think they are doing alright by just paying the minimum amount requested. In most cases, this amount barely covers the interest and finance charges so it takes years to gain any ground in paying off the balance. When you do this, you end up paying several times the original cost of the items you purchased. If you bought those items on sale, it didn’t end up being such a great deal if you have to make payments on it for several years.
This is a concept similar to compound interest. You can start by saving a small amount, but if you keep adding the interest to it each month, it can add up to a substantial amount over time. On the other hand, if you owe money the interest keeps accumulating each month on the amount due.
Nancy Kvamme is owner of In The Black Money Coaching. It is Nancy's passion to help others gain control of their finances. It is also important to her to teach financial literacy to children. She is a volunteer with Junior Achievement.