Messages about buying, charging, refinancing, consolidating are pouring from all media outlets. They offer attractive credit terms, making it easier for consumers to fall into the credit trap. If you are like most Americans, you probably have several credit cards with balances on all of them. You may struggle to make minimum payments and continue to use the cards for your basic needs, digging yourself deeper and deeper into debt. The good news is, it is possible to become debt-free.
The first step towards a debt-free life is to create a budget. Many people would admit that they have never had a budget or, if they had one, they never followed it. Uncontrolled spending is the culprit for consumers. To check your spending, look at your past two or three monthly bank statements and calculate how much you have spent in different categories: food, gas, utilities, credit card bills, entertainment, etc. You may be surprised just how much money you have spent on some things.
Next, make a decision to get out of debt. You have to control how your spend your money. Before buying something, consider if it is an “emergency” or a “non-emergency” item. For some women, buying a new pair of shoes may seem like an emergency situation. Learn to exercise self-control when tempted to buy something you can do without. Do you really need another pair of red shoes? Instead, create a “wish list” of items you would like to have and save money to buy them.
Create a list of all credit cards, rates and monthly payment amounts. Start by paying off the card with the highest interest rate first. Pay more than a minimum payment if you can. Once the balance is paid off, add the money that was going towards this payment to the next card’s payment. This method is called “rollover.” It is effective as balances are getting paid off faster as you move down the list.
Credit card companies calculate monthly payments based on the balance owed. As you pay it down, your minimum required payment amount will decrease. To pay the cards off faster, continue paying as much as you’ve been paying before. While you are paying off the card with the highest interest rate, continue to make at least minimum payments on the other cards. If you have a hard time making payments, consider cutting out some expenses, such as your cable bill or dining out. As a last resort, get another job.
Once you are debt-free, avoid getting back into it. Make adjustments to your budget. Build a good emergency savings fund that will be used for unexpected expenses, such as car repairs or a new refrigerator. Get out of the debt trap once and for all.