If you’re considering a personal loan, chances are you’ve found yourself in a financial bind. How did you get there? Overspending can be a stealthy problem, creeping up on you over months and years until you find yourself with more money going out than money coming in. The results can be financially devastating.
Though getting a personal loan with great terms can be a good way to consolidate credit cards or pay off medical bills, it’s important to work hard to not get in that position again. Let’s look at overspending and how you can reverse course to save money rather than spend it.
Are You Overspending? How to Tell
Personal loans are a great way to manage your debt and get caught up on bills, but they won’t solve the underlying problem. Overspending is often triggered by things that we don’t even realize are happening. For instance, you might call it “retail therapy” because it’s a way to feel fulfilled or soothe anxiety. Maybe you overspend when you’re bored, or overwhelmed, or feel the need to keep up with the neighbors. Whatever the reason, there is likely a trigger that makes you want to spend money you really can’t afford to part with.
But beyond that, how can you clearly know you’re overspending? Begin by determining exactly how much you make. Then track your spending for the last three months. You can likely do this easily if you put everything on credit cards; just take the statements and add up the new balances for those months. Are you spending more money than you’re making? That means you’re overspending.
How to Stop Overspending
Once you determine you’re overspending, you might feel a touch of panic. And yes, it’s a serious situation, but one you can start remedying right now. Here’s how to rein in your spending.
- Get rid of those promotional emails. Temptation to spend hits your inbox every day. Take action by opening the email, finding the “unsubscribe” button, and going through the steps to stop the emails. Alternatively, you can set up filters that send those emails directly to the trash, so you never see them – but to avoid the temptation to check the trash, unsubscribing is really your best option.
- Clean up your social media. Temptation also fills up your social media feeds. How often have you scrolled through social media to find ads that are perfectly targeted to what you’d like to have? As your online buying habits change, so will those ads. In the meantime, many social media platforms offer a “rate this ad” feature or something similar, where you can request not to see ads like it again. It takes some time but eventually your feed will begin to feature much more benign or generic invitations to purchases, which could be easier to ignore.
- Make it tough to use your credit cards. Most online stores allow you to save your credit card information for very easy checkout, and some offer the “one click” option. The problem is that it removes the sense of gravity from your purchase – you don’t have to think about what you’re doing. Make it tougher by removing all your financial information from online stores. If you shop there again, you’ll have to enter all those credit card digits, and that gives you time to reconsider.
- Give yourself time to think it over. Impulse purchases are a big driver of overspending. Create a rule that requires you to wait for a certain period of time before leaping into the buy. A good rule of thumb is to wait 48 hours. During that time, consider: Do you really need this? Do you have something already that serves the same purpose? Why do you want to make this purchase? If at the end of your self-imposed time-frame you’re still certain you really want to make the purchase, then you can do so with a clearer head.
- Pause or cancel subscriptions. Subscription services are huge these days, and they’re the easiest thing to purchase because you never actually see it happen. Your credit card is quietly charged on a certain date and then you get goodies in the mail! Start by pausing your subscription for a month or two. You might find that you don’t miss it at all and if that’s the case, it’s time to cancel for good.
- Create a personal goal. How long can you go without spending anything? Give it a shot. Set a goal for a week or two and see what happens. Yes, it might be tough, but what a sense of accomplishment when you do it! If you can’t get away with zero spending, give yourself a limit, such as $25 per week. Find creative ways to make that amount work.
- Be held accountable. Start tracking your purchases. Write every one of them down, with exact dollar amounts, and add them up as you go. If you start to feel uncomfortable as you see that number go up, good! That means you’re being held accountable. If you don’t trust yourself to write down every single purchase, enlist the help of a friend or family member. Tell them what you spend. They can hold you accountable too.
- Use only cash for one month. To get a true sense of what you’re spending, ditch the cards for a month – yes, even that debit card – and use only cash. You’ll feel the full impact of your purchases the moment you make them, as you can actually see the cash depleted in exchange for whatever you just purchased. It has a psychological impact that might help curb your spending faster than anything else.
- Cut expenses where you can. If you can see savings add up, you’ll be more likely to stick with the plan of spending less. You can give this a boost by cutting expenses. Revisit your phone, internet, or streaming packages. Are you really getting the best deal? How about your insurance? What about your credit cards? Look for better deals and if you can save money, do it.
- Find other outlets. What triggers your overspending? Once you’ve determined the trigger, start doing other things to fulfill that need for retail therapy. For instance, if you shop when you’re bored, make a point of loading games or other playful things onto your phone to keep you busy. If you spend money to feel better – to get an emotional boost – try finding that through exercise instead.
Frequently Asked Questions
Learning not to overspend is a process. But once you’ve started that ball rolling, you might want to look at other ways to keep your financial health strong. Here are a few good questions to consider.
- How do I create a budget? Sit down with your financial documentation. How much do you make in a month? Take away taxes, any contributions to savings, and write down that number. Then, look at your required spending, such as your monthly mortgage and utilities. What you have left over after that is your discretionary cash, which goes toward paying for the things you want.
- I’ve stopped overspending on credit cards. How else can I save money? Take a look at your current living situation. Are you overextended? The sweet spot is paying only 25% of your income on housing. Consider downsizing if you can. How much are you paying on your vehicle? Consider trading in for a cheaper model (which as the added advantage of cheaper insurance). Consider what you spend on entertainment and try to find more affordable (or free!) options.
- Are personal loans a good idea? Yes, but only if you have a clear idea of what you’re going to do with them. When you take out personal loans, make sure they are used to pay down medical bills, consolidate credit card debt, or otherwise help your financial situation.
