Have you dug your way into credit card debt? Do you want to dig your way out but don’t know where to begin? You won’t gain anything by waiting. You need to come up with a plan and start right away, or things will only get worse. Credit card payments reduce what’s left of your paycheck, and that debt can hang over your head like a black cloud, preventing you from ever achieving independence and making you a slave to the credit card companies until that debt is paid off.
If you are very deeply in debt, it might take a long time to get out. It may seem so overwhelming that it may seem like it’s not even worth the effort. But even if it’s going to take you fifteen years to get out of debt, at the end of those fifteen years, you will be glad you did it. If you don’t start now, then fifteen years from now, you’ll just be looking back wishing you had.
So where do you start? First, call your credit card companies and make sure you are getting the lowest rates available to you. Believe it or not, some companies will lower the rates if you just ask. Also, look for balance transfer offers. In an effort to get more customers, credit card companies offer some great deals. Read the offer carefully. There is usually an upfront fee (often 3%), but it might be worth it in the long run if the interest rate is low enough. Before you do a balance transfer, do some careful calculations to make sure it will actually save you money.
Next, you need to set up a budget. The monthly stuff is easy. Figure out how much money you bring in every month, and what bills you have to pay with that money. Use your minimum payments on your credit cards. Figure out how much you need for gas, food, and other things you buy regularly. The harder part is figuring out your irregular expenses, such as car repairs. Those are what got me into trouble. Try to figure out how much you spend in a year on such incidental expenses, divide that by 12, and add it to your monthly budget. Plan to set that amount aside in a savings account every month so that it will be there when you need it, and you won’t have to rely on credit cards.
If your income isn’t meeting your expenses, you have two options. You can reduce your expenses, or you can increase your income. Choose what works for you in your situation. Is getting a second job an option for you? Will getting a second job increase your expenses or put you in a higher tax bracket, erasing your extra earnings? Again, do some careful figuring before deciding that this is the option for you.
Your second option is to reduce your expenses. If taking a second job isn’t an option or would be counter-productive, then you need to review your budget and see where you can make some cuts. You can make small cuts across your budget and make a big difference. There are hundreds of ways to reduce your expenses. Eating out and entertainment are things most of us can trim from the budget. Invite friends over for a potluck instead of eating out. Borrow old movies from the library and pop air popped pop corn rather than seeing the latest blockbuster. Reduce your electric bill by turning down your thermostat in winter, using fans instead of air conditioning, and hang drying clothes. Save money on groceries by eating less processed food (oatmeal costs 70% less than processed cold cereal, for example) and shopping for what is on sale in the weekly ad, rather than paying regular price. If you are paying for both a cell phone and a land line, consider giving up one or the other.
Stop using your credit cards. If you’re worried you’ll need them for an emergency, put them in a safe place at home and only use it in the case of a true emergency, not because someone invited you out and you don’t have the cash to go along. Make the commitment to yourself to pay the same amount on each card every month. It’s ok if all you can pay for now is the minimum payment. As the minimum payments go down, though, don’t be tempted to decrease your payment. Keep paying the same amount until your debt is paid off. If you have more than one card, then when you pay off one, take the amount you were paying on that card and put it toward the remaining card with the highest interest rate. Once you get started, you may be surprised how quickly your balances decrease. The more the balances decrease, the more of your monthly payment will go toward the principal balance.
Getting out of debt isn’t as easy as getting in, but you can do it. Start today. You’ll be glad you did.