The bills are getting so out of control that you will be forced to stick with a budget to become debt free. This sounds like it will never be accomplished, but this time you have really gotten yourself into big financial trouble. It has gotten to the point where you are using one credit card to make minimum payments on another. Sure, this may be a sign of the bad economic times, but you really had this horrible habit long before the recession hit. What are you going to do to finally get out of debt? Where do you start?
Make a Commitment
Basically, everything will have to start with you. You must make a commitment to become fiscally responsible so that you can get your financial life back on track and begin living again. Sure, you made many bad financial choices in the past, but this does not mean that you can’t make better choices now and move on. Basically, you will have to make a change for the better if you want to pay off your giant credit card debt and become debt free and it must start now.
The bottom line is that you have to stop spending money. Whether it is cash or credit, you will never become debt free if you continue to spend money unwisely. You should never let your credit card spending get out of hand and you need your cash to pay down the credit cards. So never feel like it is okay to spend cash when you could be putting it somewhere else like on an unpaid bill or in a savings account. Make the commitment to spend money wisely. This mindset will get you closer to your goal of becoming debt free.
When you stop spending money and learn how to budget, there are only a few things that you can do with it at this point. You will make investments, pay off bills or put it into some type of savings account. Before you tackle a long term goal of paying down bills, you should create a basic savings account and an emergency savings account.
Contrary to belief, the two accounts are different and should be a part of your budget plan. The savings account will be for larger items that you want later. The emergency savings account will be for emergencies that you have no control over. Both accounts will be needed when you start paying down your giant credit card debt. You don’t want to stop your long term payment plan if an emergency breaks out. In addition, it would be wonderful to have extra money on the side to reward yourself if you reach your debt free goal. Once you have at least 3 month’s salary in your emergency savings account, you can begin your long term payment plan.
Create Your Long Term Payment Plan
What method are you going to use to pay off your giant credit card debt? You need a budget plan that is realistic and easy for you to follow. The following are a few suggestions to get you on your way:
1. Make a list of all debts. Before you can tackle your debt you have to budget and know exactly what is outstanding. Write each credit card down on a sheet of paper along with the outstanding balance beside each credit card.
2. Arrange your credit cards according to the outstanding balances. List them from the lowest amount to the highest. Most financial professionals say that you should budget and handle the credit card with the highest interest rate first, whereas there are others that would strongly disagree. Think about the motivation that you will receive once you see the first debt paid off, which will be easy to accomplish if you pay off the lowest amount first.
3. Concentrate on one credit card at a time. Make the minimum payments on all cards, but put an extra amount each month on the lowest credit card, if you have it in the budget. If not, make little extra sacrifices. Once you have paid off the first card move on to the next. The amount that you paid towards the first paid credit card should now be put on the second card until it is paid off. Notice a pattern?
4. Do the same for each credit card on your list. Continue making payments in this manner until each credit card on your list is paid off. If this strategy is followed, you will eventually reach your goal of being debt free.
Don’t Fall for Empty Promises
One word of warning would be to not fall for the rhetoric of companies that claim they can help you become debt free. Sure, they might be able to help in a small way, but it will cost you money. Why else would they be so willing to help you get out of debt? What will they get for helping you become debt free? Do you really want to budget for extra service fees to pay to debt consolidation companies when you could put this money on your credit card payments? Why make these companies richer and yourself poorer? Move on to a debt free life and don’t fall for the empty promises of these financial companies.
Change! Change! Change!
In conclusion, if you want to pay off your giant credit card debt and become debt free, do something about it. The change begins with you. Stop spending money unnecessarily and find ways to save money for the future. Look inward and determine ways in which you can make financial adjustments in your life.
Try to figure out the various ways that you waste money on a daily or even yearly basis. Do you really need to have fast food every day for lunch? Do you really need to have 225 pair of black designer shoes in your walk in closet? Does your kitchen really need new granite countertops? Do you really need to have an oceanfront condo with a balcony on your next family vacation?
Reconsider these purchases. Adjust your budget accordingly. These are all ways that you can modify your budget and reach your long term goal to become debt free.
Timothy Ng is a personal finance writer, and has a real passion for encouraging people to compare credit cards to ensure they get the best deal.