Knowing where your money goes and how often it goes there can mean the difference between having enough money to take the family out for ice cream, or owing overdraft fees on your checking account. The earning and spending of money is called cash flow, and your monthly cash flow is probably more important to track than your monthly income. Even on a monthly income of $10,000 per month, if you spend $10,500 per month you are in a worse financial position than someone who earns $3,000 per month but only spends $2,000 per month.
When it comes to cash flow, many of us may not be in complete control of how much money comes in, but we are all in control of how much money goes out.
A key component of how much money is going out is your debt payments. From things like mortgage/rent payments to credit card payments, any payment you must make towards repaying money you have borrowed is considered a debt payment. Once you agree to a certain debt payment it may feel crippling, and the more individual debt payments you have the more money that is going out of your budget every month which reduces your cash flow and makes it harder to have any money left over to take your family out for ice cream.
There is a solution, and depending on your financial situation, consolidating your debt can have a huge impact on your monthly cash flow. There are a few different ways you can consolidate your debt, and even more reasons for you to do so. Let’s take a look at an example.
Imagine you have a friend named Tasha. Tasha has the following debt payments every month:
Every month Tasha is paying $1,585 in debt payments. Tasha makes $20 per hour and after taxes, health care, and putting away a little money in her company’s 401k program she brings home $2,400 per month in income leaving her with $815 every month to pay for food, gas, utilities, etc. Although Tasha does everything she can to make her debt payments on time every month, she regularly has to borrow money on her credit cards, or even take out payday loans to get by.
Many individuals find themselves in situations similar to Tasha’s. The good news is they have options. Here are a couple ways Tasha could consolidate her debts to free up some monthly cash flow.
Instead of paying $1,585 per month in debt payments, she now pays $1,450 freeing up $135 a month in cash flow ($950 per month total) without Tasha borrowing any extra money. Plus Tasha should see an increase in her credit score by paying off her credit cards!
Instead of paying $1,585 per month in debt payments, she now pays $1,400 freeing up $185 a month in cash flow ($1,000 per month total) without Tasha borrowing any extra money. Plus Tasha should see an increase in her credit score after paying off her credit cards!
These are just two ways Tasha could consolidate her debt and free up some cash flow for her family. Tasha would just need to sit down with a personal banker to get an idea of what the best option looks like for her and her family. Here at Kansas City Credit Union, we help members like Tasha every day by putting the personal back into personal banking.
If you need a little breathing room in your budget, visit a branch or apply online to have one of our personal bankers help you understand your options and help you along your path to financial freedom.
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