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How to Reduce Your Dependency on Debt When You're in the Military


Getting out of debt can be challenging, but it's not impossible. Reducing your dependence on debt requires planning, strategy and discipline. In addition to a change in attitude toward personal finance, you'll find committing to changing your personal spending and saving habits beneficial to your new financial goals.

If you're serious about decreasing your dependency on debt, here's what you can do today:

  • Cut up your credit cards and start paying down your credit and personal loan balances, beginning with the smallest amount.
  • Set up an automatic transfer from your checking to your savings account every payday. Save at least 10 percent of your income, more if you can afford it. If you get a bonus, promotion or even your tax return, place half in your savings account and the other towards debt. If you have no debt, the second half can go to discretionary income.
  • Every pay period, withdraw a small amount of cash for incidentals and stop using your debit card. When the money is gone, understand that your budget for coffee, snacks and trinkets is exhausted.
  • Learn the differences between a traditional 401(k) and a Roth 401(k). Decide which is best for your financial situation and start contributing and saving towards your retirement.
  • If you have children going to college one day, research college savings accounts, determine which one is best for you and start contributing what you can. Increase the amount you put in as your debt decreases and your financial situation stabilizes and then improves. Also consider starting a 529 plan for your child's college education.
  • Now, more than ever, information is available to everyone and on every topic. Buy a book, surf the Internet and find articles or blogs on what you don't know, and educate yourself on issues related to personal finance.

Creating a spending plan

Do you control your finances, or do your finances control you? Perhaps most importantly to getting on track with your finances is creating and sticking to a spending plan. Spending plans or budgets, as they are also called, help you track money coming in and going out of your bank accounts, at the same time allowing you to create and achieve financial goals. Many people view budgets as a restrictive concept that forces you to pay bills and save, but never have any fun or purchase the things you want. But it doesn't have to be that way.

Spending plans are designed to pay your necessities, build a savings account and properly budget your discretionary income. When you create a spending plan, if your finances allow, you can eat at your favorite restaurant, buy that new pair of shoes, pay down your debt or take a weekend trip to the beach. But you probably can't do everything at the same time, and that is what a budget will show you. Instead of putting unnecessary charges on your credit card, you'll be able to see what you can and cannot truly afford.

And if you set financial goals for yourself, like saving a certain amount of money over the next year or completely paying off a credit card, you can incorporate those goals into your spending plan and track the progress.

Budgeting your discretionary income

Discretionary money is the money you have left over, after your monthly bills are paid and you've deposited your designated amount into savings. It's your extra money, your fun money.

Prioritize your needs and wants by importance. Do you need to pay extra on a credit card? Or do you need a new pair of shoes for work? Do your brakes need repairing? Or do you want a manicure and pedicure for a weekend event? Make a list with the most important items first, and purchase them as your spending plan allows. If you can't afford something this pay period, bump it to the next. You may not be able to get everything you want at one time, but you may eventually get everything you desire, all the while staying within your spending plan.

Don't cheat yourself by not sticking to your spending plan. If you want to spend your discretionary income on a new handbag, but you really need to buy a new tire for your vehicle, don't put the tire on credit. Buy it with cash, and figure out when you can make the purchase of a new purse work with your spending plan.

Planning for extra expenses

If you want to plan for a future expense like holiday shopping, birthday gifts, expensive car repairs you know will come or maybe a vacation, you can do it with your spending plan. Add the cost into your spending plan, either on the fixed or discretionary side. It may be best not to leave the money in your checking account; you might be too tempted to spend it or you may forget what that money is for and allocate it to something else.

Instead, put the money in a separate savings account (not your normal savings account), and fund it every month with the amount needed to achieve your goal. When the expense arises, you'll have the money you need and the expense will not impact your spending plan or cause you to use your credit card.

Need more help?

If, after creating a spending plan and following the recommended steps, you find that you are still challenged with reducing your debt, you may wish to seek the advice of a professional. Each military service offers a Personal Financial Management program to help service members and their families successfully plan for their financial futures. Personal financial counselors provide education and counseling services that address a range of financial topics, including assistance with budget development, financial planning, spending plan development, management of personal finances and debt liquidation. Personal financial counselors not only help you plan your future but can also connect you to Consumer Credit Counseling Services, a non-profit agency partnering with DoD, to offer free credit counseling services to military service members.

To find the Personal Financial Management Program on your installation, visit MilitaryINSTALLATIONS. If you are not located near an installation, you can contact Military OneSource at 800-342-9647 or the Joint Family Support Assistance Program to reach a confidential financial counselor.


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