Getting out of Debt seems to be something most Americans want to do these days. Especially after Christmas which is right around the corner. During this time of year a lot of people feel in the giving mood and they pull out those credit cards and rack up 2-3,000 in additional debt during the months of November and December.
If you would truly like to get out of debt the first thing you need to do is stop incurring more! Debt that is. When you do your holiday shopping this year keep your credit cards in a drawer somewhere out of reach.
Once you have stopped the flow of money out of your pocket. You can limit the amount of interest you pay on your current debt. You can transfer to a lower balance, but beware of the fees associated with transfering the balance. Read the fineprint. You can also ask your lender or credit card company to lower your interest rate. You may also benefit from doing a consolidation loan or a home equity loan. My friend recently consolidated some debt, his dump truck (he owns his own excavating business) and other miscellaneous credit card debt by doing a home equity loan that not only lowered his combined interest rates but allowed him to free up about $500 a month in cash flow which was an important factor to him. If he wanted to get out of debt quicker he could of just kept paying the same amount and he would have been out of debt about 3 years earlier.
In the above video the woman recommends that you have your bills set up to be automatically paid. Let me just say this... If you do not have your bills set up to be automatically paid you need to do it now. It lowers the chance of you missing a payment, you can set it up to pay more to the princiap every month automatically, and it reduces stress. There will be some bills that you have to remember to go into your online banking and send a check for, but it should only be a few.
She also recommends that you "Spend Smarter", which I whole heartedly agree with. I calculated how much I spent one year on my Hazelnut mocha addiction and it was sick (about $2,400). Needless to say these "Phantom Expense" can really add up. Phantom expenses are things like that soda pop you buy every morning, the pack of cigarettes, or that double half-calf decafinated no foam tepid caramel latte! I am not saying to stop treating yourself, but be aware of how much treating yourself costs, because those little expenses can really add up. I changed my drink to an Americano because it was better for me (less calories) and it saved me about $1,000 a year.
One other important tool I would like to add to your belt is a method called "Debt Stacking". Debt stacking basically allows you to use less money to pay off the same amount of debt quicker. The method of Debt Stacking generally states that you pay off the highest interest rate debt first, while making close to the minimum payments on the other credit cards. When you pay off that high interest rate credit card, you then transfer the amount that you were paying monthly on that card to the next highest interest rate credit card. Let's look at an example:
- Credit Card: $5,000 at 24% APR, minimum payment $100
- Credit Card: $5,000 at 18% APR, minimum payment $100
- Credit Card: $4,000 at 12% APR, minimum payment $100
You are able to pay $400/month towards all credit cards
Using the Debt Stacking Method you would pay $200 dollars towards Credit Card #1 until it was paid off. Then you would add that $200 dollars to the $100 dollars equalling $300 that you would pay on Credit card #2 until it was paid off. Finally you would add the $300 you were paying on Credit Card #2 to #3 for a total of $400 dollars until the last one is paid off. Presto you are out of debt and you have paid less interest and got out of debt quicker than had you paid the same amount of money spread equally over the three credit cards! I know it is like Magic!
So, In conclusion we see you need to Stop Incurring more debt, Pay less interest on the debt you do have, Set up your bills for autopay, Spend Smarter and if you find yourself in a situation with multiple credit cards and varying interest rates use the Debt Stacking Method. You'll be debt free much faster, and you will save a lot of money!