Debt-Free To-Do List

Debt-Free To-Do List

Excess debt had turned the American dream into American nightmare.  Generally speaking,  most people think of the debt of the federal government whenever they  think about America's debt problem.   But the hard, cold fact is that this is only part of the story.  The bottom line: debt slavery has become a way of life for tens of millions of American families.  It should be noted here that over the past several decades, most  Americans have willingly allowed themselves to become slaves  to debt.  In fact, most Americans these days are busy either paying off the debt that they have accumulated in the past  or going into even more debt or paying.  It is important for Americans to realize that when their finances are dominated by debt, it makes it really hard to ever get ahead. In 2007, the Federal  Reserve Board reported  that Americans have almost double their revolving outstanding consumer credit in the last decade from $462 billion in December 1996 to $879 billion  in December 2006(Curry, 2007). Consumer borrowing rose by another $19.3 billion in December 2011.  As of November 2012, it is sitting at a grand total of as much as $2.5 trillion, according to the Federal Reserve. Since 1971,  consumer debt in America has increased by a whopping 1700 per cent!

Some Warning Signs that You are Underwater

1. When you use your credit card advances to pay for other credit card bills

2. When you skip some payments you cannot afford

3. When you try to get a lower interest rate on a new card  by constantly switching cards

4. If you and your partner always argue about bills.

5. When you loose sleep or you are stressed out about your debt.

6. When you make everyday purchases like gas with your credit card.

7. When you don’t know how much debt you owe.

8. When you get calls from creditors or debt collectors.

Given the above facts,  I have this important message for my readers: You need to get out of debt fast. So if your bills are adding up and there is no relief in sight, the following advise can dig you out of debt if you follow them religiously.

Credit Card Payment Strategy.

You should create a credit card payment strategy. One of your strategy can be to pay off the card with the lowest balance first. Make some few sacrifices, such as making one less $150 purchase(in, say, shoes or gadgets) per month. You can apply the savings you made in this way towards the credit card debt. This strategy can also be applied with personal loans and lines of credit too. After getting the lowest card paid off, you can move to the next lowest card. It is important that you continue to roll over each payment to the next card until they are all paid off.

Pay More than the Minimum

In most loans, repayments are set up in such a way that when you pay the minimum payment, it is applied to the interest on the loan. Hence it is better for you to triple up on those minimum payments, if you can afford it. Note that if you have, say, $10,000 in credit card debt, it will take you up to 25 years to pay off that debt if the interest rate is 15 percent and are making only the minimum payments.

Always Shop Around to Get A Better Rate

It will be a smart move to go for it whenever you get a great opportunity for a lower interest rate. This means that, instead of the 15 percent interest you are currently paying on a credit card, you will be better off if you can transfer to a card that offers you, say, a 7 percent rate. By doing this, you can save hundreds or even thousands of dollars over the course of a year. You can shop for a better rate by going to sites like Bankrate.com, where you will have the opportunity of taking advantage of offers provided by a credit union, your bank or even other lending institutions who often offer low rates for transfers. But there’s a caveat here: if you bounce around too much, it may lower your credit score. You can also consider making a debt consolidation, whereby you take several debt and convert them into one monthly payment.

Control Your Spending

You should also keep your credit cards out of your pocket. This will help you to avoid impulse shopping. Use any extra cash you receive wisely. It is also advisable to avoid spending any bonus check you may receive or your tax refund on frivolous purchases. Instead, form the habit of applying a portion of these payments to your debt and save any remaining balance.

Using Cash to Make Payments

Paying cash for everything means that if you don’t have the cash, you don’t buy it. You may consider cashing out some of your savings. The rule of the thumb: make sure you have at least three month’s income to use as emergency savings. Note that if you are in debt overload, you can spend some savings to reduce debt – an action that is considered to be an appropriate financial emergency management.

More Income

You may need to find another stream of income. Note that earning more cash will not make any difference if you can’t save of if you are not willing to apply it on your debt. The message here is clears: you will need to change your income, your mindset, and your spending habit. Nevertheless, try to find a way to make extra cash on the side. You may consider doing such things as tutoring, selling your wares on eBay, or even managing a website. You may also consider applying for positions with temporary agencies.

The bottom line: Unless you win a lottery, your debts will not go away overnight. However, with discipline and by following the steps described here, you will shrink your debts significantly.

References

Curry R.C.(2007): Debt Overload? Black Enterprise. June, 2007.