By: Al Goldstein, Pangea Properties

Each year thousands of people find themselves in financial trouble whether it’s the result of unemployment, medical bills or plain old overspending. According to the Federal Reserve, the average American family has debts that total over $75,000.

It is easy to see that debt is a nationwide problem. Recent statistics show that 43% of Americans spend more money than they make each year, and consumer debt has increased 1700% since the early 1970s. We’ve become a country that lives on credit, and that is reflected in our spending and in our lifestyles.

Debt can have a crippling effect on one’s overall financial well-being as bad credit (or no credit) can dictate important factors such as one’s ability to rent an apartment.  It can also take an emotional toll on one’s relationships and frame of mind. In fact, the number one issue that most couples fight about is finances, and stress over debt is a huge contributor to those disagreements.

Bad credit scores can have a large impact in today’s society. It’s becoming harder and harder to secure a good credit rating, which can then affect other facets of one’s life, right down to where we live. Just a few simple missteps can really set you back.

Below are five tips for straightening out your finances:

• Determine the Root of the Problem: Whether it was some unexpected bills one month or finances seem to be a constant struggle, pinpointing the problem is half the battle. A few bumps in the road are easier to account for and smooth out than breaking bad spending habits. If you are underwater due to medical debt or a mortgage, it might be a good idea to talk to a financial counselor and help figure out ways to manage your most pressing bills. As difficult as it might be to face, downsizing might be your best option. A big house is meaningless if you spend every night fretting over bills and fighting with your spouse.
• Be Honest: Overspending is an issue that affects all income levels; after all there are millionaires who find themselves bankrupt due to living beyond their means. Acknowledging where large portions of your paycheck are going (sports tickets, new shoes, etc.) will help decide which purchases are necessities and which are expendable luxuries. This is especially important when it comes to relationships. ‘Financial infidelity’ is a new behavior trend among couples who hide their spending habits from one another. While keeping your recent shopping splurge a secret can prevent arguments in the short-term, it can destroy both your trust and your finances in the future.
• Understand the Ability to Fight Debt: The best way to fight debt is to increase your disposable income and decrease your living expenses. Changes in how you commute to work, where you live and how and what you eat can vastly improve your ability to fight debt. If you can’t make more money or have trouble saving, cutting other costs will help to bridge that gap.
• Set a Budget and Stick to it: Determining how much money should be spent on groceries, car payments, household expenses and even entertainment will provide a clear outline of how much money is spent on weekly or monthly living expenses. Allocating a percentage of each paycheck to those expenses, and sticking to them, will help reign in the spending.
• Use Credit Cards Sparingly: If you are short on cash, do not use your credit cards based on future or “potential” income because the money may never materialize. High interest rates can quickly put big spenders in the hole so charge sparingly. Try to limit your number of credit cards. Alarmingly, one out of seven Americans has more than 10 credit cards. That accounts for plenty of debt as well as plenty of stress.

The bottom line is that you can combat debt and restore financial security to your life once again. You just have to honest, proactive, and ready to make some serious changes. In the end, it will certainly be worth the peace of mind.