Years ago, I found myself in the unenviable position of being about $30,000 in debt, mostly due to credit cards. Why I dug myself into such a deep hole isn’t important. What matters is what I did about it.
Surprisingly, getting out of debt doesn’t have to be difficult. However it does require you taking a good look at the situation you’ve created so you can craft an intelligent way to get out of it. Once you get that out of the way, it’s mostly a matter of establishing and following simple steps to reduce your credit card balances and eliminate them for good.
1. Total Your Debt
First, you need to know exactly how far in debt you are. This can be uncomfortable, but adding up how much you owe to each creditor is essential. From there you can better determine which cards to pay off first (according to interest rates, for example) and develop a pay down plan according to your budget.
2. Get on a Budget
One of the problems I had is that I didn’t know the ratio of my spending to income, so I was spending more money than I made. The way to solve this is to make a personal budget. There are a variety of websites available that can help, such as Mint and BudgetPulse. Accurately input all of your monthly expenses, as well as your income to get started. If you are spending more than you are making, trim your nonessential expenses and research the Internet to find ways to cut your monthly bills.
3. Create a Realistic Pay-Down Plan
Trying to eliminate all your debt in three months probably is not feasible, and if you set an unrealistic goal, you may get frustrated and give up. Instead, create a pay-down plan that is realistic. For example, say you have $4,000 in credit card debt, and after all expenses are paid have $100 to devote to it each month. By applying that $100 to your debt each month, you can be debt-free in three years and four months. If possible, reduce your monthly bills to free up even more money to “snowflake” your debts.
4. Create Goals and Adjust Them as Necessary
As you craft your pay-down plan, include short- and long-term goals. Obviously, per the above example, your long-term goal is to be debt-free in three and a half years – but if you don’t include short-term goals, you can lose motivation. Therefore, set benchmarks along the way to make sure you are on-track. If after six months you find yourself slightly behind schedule due to other unforeseen expenses, don’t give up – readjust your goals and keep plodding along. On the other hand, if you get a raise at work or an unexpected bonus, apply this money to your debts, and adjust your timeline to account for the extra income.
5. Reward Yourself
When you meet your benchmarks, don’t be afraid to do something nice for yourself, even if it involves spending a small amount of money. Treat yourself to a ballgame, take in a free concert, or enjoy a night out at a modestly priced restaurant. One thing I learned along the way to a debt-free life is that motivation is of the utmost key. Congratulate yourself whenever it makes sense.
Once you become debt-free, be sure to stick to your new found and fiscally responsible way of life. Instead of paying off credit card balances every month, redirect that money to an emergency fund or retirement account. If you’ve never lived life without credit card balances, you’ll be amazed how liberating it is, and how much easier financial management becomes.
What additional ways can you suggest to reduce credit card balances?
Jay Barnes managed to dig himself out of thousands of dollars in consumer debt. He now works on wisely managing his finances and shares his insights with others.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.