Ways to Dig Yourself Out of a Financial Hole (Part I)

If you’ve found yourself stuck in a rut, it is possible to dig yourself out, but only if you’re willing to put in the work. It’s crucial to establish smart money habits in order to build yourself a healthy financial future.

Maybe you’ve never learned how to manage your money properly, or maybe you’re in debt due to circumstances beyond your control.

It doesn’t matter how you got to where you are now. What matters is how you’re going to get yourself out. Use a few of these pointers to start digging yourself out.

1. Start Right This Minute

The best time to have started getting your finances together is in your twenties. If you’re long past that stage, the second-best time is right now.

2. Get Realistic

If you’re in debt, quit adding to it and start acting responsibly. It’s obviously easier said than done, but once you stop the snowball effect, you’re on your way to financial freedom. It’s time to take accountability, get practical and avoid wishful thinking.

If you’re struggling, that’s normal. Think about your spending in this way: Adding more debt doesn’t just mean paying extra interest, but also something called “opportunity cost.” Every dollar you spend is a dollar that can’t work for you any other way.

While you’re still in the hole, this means your dollars aren’t being used to help you dig your way out. And once you’re debt-free? It means dollars that can help you meet new financial goals: retirement savings, paying off your mortgage, a family vacation, or whatever will make your life better.

3. Be Frugal

This doesn’t necessarily mean adopting crazy habits, but simply to urge you to adopt a frugal attitude. This may be asking yourself a few of these questions every time you are tempted to purchase an item:
  • Do I really need this?
  • Is there something I already have that might work?
  • ]If I absolutely must get this item, is there a way to do so for free (borrowing it from a friend)? And if not, how can I make it as affordable as possible (waiting for a sale, checking Facebook Marketplace, or local yard sales)?

4. Track Your Spending

A lot of people swear by the 50/30/20 budget rule. Fifty percent of your after-tax income is spent on needs, thirty percent on things you want, and twenty percent on savings and debt repayment.

Arrange your current spending into those three categories. If you’re spending more than you should in either of the categories, find ways to bring costs down. For example, you may want to cut costs on groceries or refinance your mortgage to get your “Needs” spending under fifty percent.

Remember, the categories can be flexible. If debt repayment is more important to you than eating out, use some of your “Wants” dollars towards paying down your debt.

5. Create Your Debt Payoff Plan

It might sound daunting, but the first thing you need to do for this step is to add up your total debt - yes all of it. A lot of people don’t know because they don’t want to know, but it’s crucial to get real about paying it off once and for all.

The second step, if you’re making extra payments on your mortgage, consider putting that money towards your higher-interest credit card balance. Talk with a mortgage specialist about the possibility of refinancing your mortgage; your loan would be longer, but the money you’ll save each month can be used towards paying off your higher-interest debt.

Next, call your credit card issuers and ask for lower interest rates. There’s no guarantee you’ll get a lower rate, but it can’t hurt to ask.

Finally, try the “debt snowball.” Pay the minimum payments on all your credit cards except for the one with the lowest balance. For that one, make the biggest payment you can. Once that one is paid off, you attack the next card with the lowest balance, and so on. With this method, you’re paying off each card quickly which encourages you to keep going.

If you need help digging yourself out of your financial hole, enlist the help of one of our financial professionals to help keep you on track. Speak to a representative at one of our twenty- two branch locations for more information.
The material provided on this website is intended for informational purposes only. Links to other web sites are provided for reference and do not constitute a referral or endorsement by Pioneer or its affiliates. Please note that such material is not updated regularly and that some of the information may not be current. It is recommended that you consult with a financial professional for assistance regarding the information contained herein.