It’s a new year and that means everyone is off to an inspiring start on their new years resolutions. You may already have your plan in effect to lose weight, get fit, and aim for that new promotion, but what are you doing about the pile of debt you racked up over the holidays? It’s well worth noting that only 8% of the population will be successful in their new years resolutions (according to the trivia flip calendar on my desk.)
While you pay the minimum balance on your credit card accounts, that debt is going to continue accruing interest and take you years to pay off. Wouldn’t it be nice if you started to take control of it today before it controls you? (And if it already does, I can help.) Here are a few tips to live by to get your mountain of debt in order.
Find out what is on your credit report
You would be surprised at the amount of people who have not a clue as to what is reporting on their credit report. Most people aren’t even sure how much debt they are actually in. They may say its one number when it’s actually much more. Your first step towards paying off your debt is to find out how much of it you have. You’re going to need to get a credit report. You can obtain one by visiting www.annualcreditreport.com. They will give you one free FICO credit report every calendar year. You may also go with free online sites like Credit Karma or Credit Sesame. However, the free online sites only pull from one bureau and their scores are not FICO. (For more on FICO vs FAKO, read our past blog here.)
Once you get your credit report make note of all of your debt. Write it down and add it up so that you know just exactly how much debt you are in. For some of you this may be devastating, but don’t worry, look at it more like a goal to obtain and keep you mind focused on the end result.
Make a budget
Now that you can see how much debt you are in and how many bills you have to pay, it’s time to make a budget. Study your past bills and bank statements and write down all your necessary living expenses. This includes: Rent or mortgage, utility and credit card bills, car payments, ect. Make sure you’re paying everything on your credit report on time so that your accounts don’t fall into the negative.
Be realistic with yourself and cut out any unneeded expenses. Goodbyes are never easy, you may have to start making some sacrifices. Cook meals at home and bring lunch to work instead or dining or ordering out. It may be a good time to cut Netflix, HBO, or any of those other premium channels out of your life (you’ve already watched everything good on there anyway.) Once you get rid of all your unused subscriptions and services, you may find yourself with much more money than expected. Those $8/month subscriptions really add up when you have a bunch of them.
Try for better rates
Most of the population today takes whatever is given to them without asking any questions. I’ve found that you can actually go far and get more out of life by simply calling and asking for it. If you get denied, you’re in the same position you were in before. Some of your credit cards may be impossible to pay off simply because their rates are too damn high! If you can get a better rate on the card, then why pay more money if you don’t have to? Try calling up each of your credit card accounts and asking them to lower your rates. Just make sure you prep yourself and do your research. You may want to find out what the prime rates are for that card. If you’re unsure of how to ask, try doing what Sally from creditcards.com did here
Apply for 0% balance transfer cards.
As stated before, the interest rates may be too close to the minimum payment on your card. This will take forever to pay the account off if only making minimum payments. Most large credit card companies will offer 0% balance transfer cards, interest rates worst enemy. 0% balance transfer cards are the secret play in your playbook to get out of credit card debt. These cards will allow you to transfer your balance to a new card with 0% interest for a period of time. Making it perfect people who are trying to pay off debt! Your balance will drop surprisingly faster if you are not paying interest. Transfer your debt to a 0% balance transfer card and make it your goal to pay off the balance before the interest rate kicks in.
It is vital to note you should NOT CHARGE THE CARD as you will only make your debt situation worse. These cards should only be used to pay off the debt, not add to it. You will need to get approved for the card as they may only issue them to people with good credit. Shop around, and choose the right card for you.
Pay off the large accounts first
So now you’re ready to start paying off your accounts, but which ones do I take care of first? The best method would be to flood your extra cash into the largest accounts with the highest interest rates, while making minimum payments on all others. This will ensure that you are paying less in the long run. The higher the interest rates, the more money you will have to spend paying off the account. Once you finish with your biggest baddest account, flood your extra cash into the next biggest baddest account until that one is paid off. Continue this process and you’ll be out of debt much sooner than you think.
Some people may suggest the opposite. Take care of the smaller accounts and work your way up to the big ones. While this is still not a bad idea, in the long run you will be paying more due to the accruing interest on the big accounts.
Don’t use your credit cards
The whole point of this process is to pay off your debt. If you continue to use your cards while attempting to get out of debt you’re going to get nowhere. Do not close your credit card accounts as doing so will drop your credit score. Start paying for items in cash rather than credit. You’ll find cash is a much cheaper and safer means of currency.
Don’t apply for new lines of credit
This one should be a no-brainer. Applying for any new lines of credit such as new credit cards or loans will only hurt your process towards a debt free life. New lines of credit means new debt and a new bill for you. Hold off on applying for any new credit until your debt is gone.
If you start utilizing these methods, you’ll find getting out of debt isn’t as hard as you may have thought. It can be a timely process but the end result is very rewarding. Living a debt free life will take a heavy burden off your back and will result in a happier less stressed you! Once you are out of debt, remember to always pay your bills on time, and don’t rack up your credit cards as you once did before.