In the past, credit has been too easy to get. Credit card companies and short term lenders, and/or the financial entities, banks, etc. backing them up, make LOTS of money. When you take a look at their interest rates and fees, it’s easy to see why! So they push credit cards on the public, on anyone with even half- way decent credit.
The temptation is high. Want something? Do not have the cash at this moment? No problema! Simply put it on the charge card. Run out of cash before the finish of the month? Just get a payday loan, right?
Mounting debt, to the stage it is getting too much to handle, is one of those things in your life that’s simple to get into, but a great deal more challenging to get out of. Nonetheless, those high aprs and fees can cost you a lot of money, siphon off your hard cash and keep you heading down the short- term debt treadmill for the rest of your life, if you do not Handle it.
Sheesh! How did I get into this position? Someone please help me get out of debt!
You ask, “Please help me get out of debt! ” O. K. But YOU got yourself into debt, now it’s up to YOU to get yourself out. Here is how.
1. Let’s get clear on the terms. There’s bad debt and not- so- bad, even good debt. Bad debt is anything with excessive charges, say, over 9% per year. Good debt is low- interest debt that you simply got into to get your hands on something of increasing value, like your house or college education.
What you need to do first in paying off debt is to reduce the bad toxic credit card debts. For most people, that means you want to get out of credit card debt.
2. To get rid of the bad debts, first, take an inventory. Make a detailed list of all your credit card and other short-term debts. Write down the name of the bank or credit card, loan or department store, the total balance owed to them, the minimum monthly payment, and the effective annual interest rate.
How do you get the annual interest rate? You add up all the interest and fees charged to you in that account. Then divide this by the total balance owed. That will get you the real interest rate per month. Then you multiply that monthly number by 12 to get the annual interest rate.
Now, take the half of your credit cards with the highest interest rate, out of your wallet or purse and hide them somewhere so you won’t use them again.
3. Make a chart. Add up the total loan balances on your list, above, and start a graph, with short- term debt amount on the vertical axis and calendar months on the horizontal axis. Make a dot on your chart to indicate just where your debt balance is NOW.
As you go along in the foreseeable future, you will need to to want to add up your total balance each month and mark it on the chart, drawing a line from the current dot to the last one, to create a graph to display how you are doing.
4. Now budget your income minus living expenses to be able to meet your minimal payments, PLUS make as large a payment as you’ll be able to make towards the charge card or other account that has the highest rate of interest. If your highest cost credit card is costing you 28% per year, just think of it as an investment you have the opportunity to make having a guaranteed 28% annual return! That’s an excellent investment return that you will collect, right?
Now just keep on with that formula. Budget your expenses, chart your total balance owed. Make your minimum payments and pay as much as you can on your highest interest rate credit card or other account. Keep on until they all go to zero! Then you wil be out of all “bad” debt, and can finally breathe free!…