Debt throws a monkey wrench into the best-laid plans. The best method to solve it is to avoid it altogether, but you probably wouldn’t be here if that were the case. Here are the best steps to get rid of your credit card debt.
1. See a professional.
Seriously, make an appointment to see a personal finance expert immediately, and then get to work on these suggestions to bring to that expert so that you can get him or her to help you. You wouldn’t need professional financial help if you weren’t in credit card debt up to your eyeballs in the first place. Read up on personal finance in the meantime. Have you read The Wealthy Barber or The Wealthy Barber Returns? Experts like David Chilton have made millions of dollars selling wisdom, strategies, and money saving tips in understandable ways. They don’t overwhelm you with math or financial gobbledygook. It’ll probably be the best $5 you’ll ever spend.
2. Create a realistic monthly budget.
This step is obvious, but many people simply don’t consider the finer details of their budgets. If you’re gearing up to lease your first car, remember to include auto insurance. If you’re living on your own, remember to include home insurance (some banks roll them together for a huge discount!). Remember to deduct Federal and state (or provincial) taxes from your monthly income before setting your budget. If you are in Canada, do not forget to factor in your Canada Pension Plan payment. Cover utilities, groceries, Internet, pocket change, and so on before thinking about other expenses. If you hadn’t stopped putting away money to get into debt already, redirect your savings toward your debts!
3. Plan your attack.
Figure out which debts to pay off first. You’ll need to make minimum payments on all of your debts unless you want to get slapped with a nasty repossession clause, but you need to squash one at a time. The general rule is to go after the debt with the highest interest rate first. Don’t just go for the account with the biggest debt. Tackle the debt with the highest interest rate first because it will grow your debt faster, which means that you will pay more for it over time than the others. Make no mistake here—you are playing against time when you pay off credit card debt, and you lose additional money for every month that your debt remains unpaid! Divide and conquer your debts.
4. Beat the minimum payments.
The best way to pay off a debt is to pay more than the monthly payments. Credit card companies make their money by claiming profits from the interest rates that they charge you, and you lose more money every time they do that. If you pay off the debt before they can charge you for interest, then you’ve saved yourself that much money. Even paying off a few months’ worth of debt early could save you money to be put toward another debt!
This doesn’t mean that you need to pay off half of your debt in a month or two. If life were like that, we, uh, wouldn’t need credit cards. You can still pay more than the bare minimum! If your monthly payment is $150, try paying $180 or $200 instead. It all comes down to eliminating that interest before it can touch you. Every month eliminated early is another month’s worth of interest saved. You’ll need to muster the money to do this by saving more than you spend, and you can do this buy keeping track of everything you spend. Some expenses are just a part of everyday living, but many are not. Skip the movies. Don’t buy that game you wanted. Stop spending money on coffee every morning after you’ve left home. No more expensive drinks or snacks from the vending machine. Stop asking friends for afternoon coffees or tea when they make a trip down to the nearest café for the members of the office.
5. Develop another stream of income.
You can do other things with your time to earn money on the side. This might seem difficult at first, but you only work 8 hours a day (hopefully!). Pursue part-time work on the side that you can do from home, like editing resumes or proposals. Help small or independent business owners do something in the meantime. Even Walter White worked in a car wash on the side before he became a crime lord!
Rent out your car or sublet a part of your living space if you absolutely cannot afford to spend more time working on the side. Can you walk or cycle to work? Maybe a neighbour can drive your car around during the day to fetch groceries.
6. Reduce your living expenses.
Does your family have two vehicles? Take that down to one vehicle. Not only will you earn money from selling the vehicle itself, you will also stop spending money on fuel, insurance, tire changes, oil changes, and other kinds of maintenance. It could also motivate any uninspired teens to get their driver’s licenses in order to use the one car more discreetly and at their convenience. Reduce other costs if you can. Does your Internet bill need to be so high? Can you cut down Netflix usage or online gaming?
7. Tie up the loose ends.
Invest in budgeting software for around $30, cut up your credit cards so that you can’t use them to spend money, and cancel your cards upon paying off your debts. Close your accounts when you’re done with them!
Paying off debt is tough, but you can do it if you focus on the more troublesome credit accounts first. Eliminate interest before it hits you, keep track of expenses down to the fine print, cut frivolous spending habits, and make some cash on the side. Divide and conquer your credit, and you’ll get rid of your credit card debt in a reasonable amount of time!