If you are struggling with debt, these tips can help you establish a plan to pay off your credit cards and become debt free. There are many small steps you can take right now that will help you reduce crushing credit debt. The tips outlined in this article will help you make simple changes in your lifestyle and spending habits.
1. Stop using credit – stop acquiring more debt
This is a tip you cannot ignore if you want to reach debt relief. To reduce your debt you must pay off the balance rather than keep adding to it. Put your credit cards away.
2. Make a plan
The best plan is to review your expenses and purchases weekly. Keep careful records of your purchases and your expenses to identify where you can cut costs. To be in control of your finances you must first understand where your money is going.
3. Start an emergency fund
Some of your debt may be due to what you think of as emergencies. Plan ahead to avoid emergencies by saving for new tires or for a large payment that will be due annually.
Even if you can only contribute a small amount each week or month to build an emergency fund this will provide security in your future. A fund to use for unexpected emergency expenses will prevent accumulating in the future.
4. Use some of your savings account
If you have established a healthy savings account this may be the time to use some of that money. You will gain by repaying the savings account with monthly payments rather than paying high interest rates on your credit card.
5. Borrow against your life insurance
Those with a whole life insurance policy may borrow against the value of it. You have the option of repaying the amount in installments with no interest.
6. Borrow against your 401k
When you take a loan against your 401k you are paying the loan back, with interest, to yourself. If your goal is a one time payoff of debt it can be less expensive to pay yourself 10% interest than to throw away 29% interest to a credit lending institution.
7. Cancel recurring payments
If you have book or cd club membership, gym membership or magazine subscriptions that automatically renew each year, cancel them. Visit the library, listen to the radio and exercise at home.
8. Borrow against home equity
In these economic times, borrowing against the equity in your home may carry more risk than it’s worth.
However, if you have a significant amount of equity in your home it may be an option for you. This is a step that should only be taken if you are certain of your ability to control use of credit in the future.
9. Family Loan
If you are able to obtain a loan from a family member, the payments and interest will be more favorable than paying credit cards monthly. You should be willing to share exact financial details about your debt and prove your ability to repay the loan. Make the loan a business transaction by putting it in writing.
10. Talk to your credit card lenders
Credit card lenders are facing an increase in defaults this year. Your lenders may be willing to work with you to handle a short term financial crisis or a long term problem. Their willingness to accommodate your needs will depend in large part on your previous payment record.
11. Negotiate a settlement with your credit card lenders
Lenders will entertain the offer of a settlement only when they are convinced you do not have the ability to pay off the entire debt amount. They may consider taking a one time payment that is less than the debt in order to retrieve as much as they can from the account holder.
12. File for bankruptcy
If you are totally overwhelmed by debt and see no way to repay what you owe, Chapter 7 bankruptcy can be your way out. This may seem an easy way out of your problems but there are pitfalls to choosing this option. Chapter 7 will liquidate your debt but will damage your credit for ten years.
Chapter 13 bankruptcy is known as the wager earner’s bankruptcy. You are proposing to pay off all of part of your debt over a period of 3-5 years by making payments as directed by the court. Chapter 13 is used as method to stop foreclosure as back mortgage payments can be included in the bankruptcy payoff.
Filing for bankruptcy is a serious step requiring the services of an attorney and documentation of your debt and your income. The tips that follow will not cause problems on your credit rating and are less drastic than settlement agreements or bankruptcy!
13. Snowball your debt payments
List your debts in order from lowest balance to highest balance. Pay the minimum amount due on all accounts except the first one on your list. Apply all the extra funds you have to paying off that one debt.
The trick is to locate extra funds (use the tips that follow below) and allocate that specific amount as a regular payment to the first debt on your list.
When the first debt is paid off take the minimum payment from that debt (the payment listed when you made the initial list of debts), add the extra amount you have been paying monthly and then apply that total to the next debt on your list.
You may be tempted to listed the highest interest rate first on your list of credit debts. Although it sounds logical to pay off the highest rate account first it is not the best way to attack your debt.
By paying off the lowest debt you quickly see the ower of the debt snowball and this encourages you to continue to pay off the accounts one at a time.
This is a simple and yet incredibly effective way to achieve debt relief. When you can see the extra payments rapidly eliminating the debt it motivates you to find more ways to reduce expenses and find more money to throw at your debt.
14. Pay more than the minimum
The only time you should pay the minimum payment due on a credit card is when you are using the debt snowball. It may not seem fair, but paying only the minimum due can hurt your credit in the long run.
Paying more than the minimum payment may require cutting back on your lifestyle. Part of your debt elimination plan should be to find ways to live below your means as you go forward.
15. Develop frugal habits
Penny-pinching is the new fad in this economy. Most crushing debt is due to overspending. Question every purchase you make:
- Do you really need that?
- Do you need it now?
- Will you use it right away?
- Can you live without it?
16. Increase your income
Take a second job or volunteer for overtime. Clean out your garage, attic and home and sell unneeded items on ebay or in newspaper classified ads. Many local papers offer free ads for items selling for $100 or less.
Apply any and all money you earn to your outstanding debt. These small incomes will help you reach your goal much more faster.
17. Learn money management techniques
Read books by experts such as Suze Orman or Dave Ramsey. Learn to make a budget that works and how to stay within that budget every month. There are tricks and tips and worksheets that will help you take control of your finances.
18. Use one car or use public transportation
Plan your errands so you make one loop that covers all of your errands for a week. Better yet, stop at the grocery, hardware or pharmacy on your way home from work to save an extra trip.
If your area has a good public transit system, use it. It may be more convenient to drive into the city for work but it is also more expensive. Take turns driving to work with a friend or form a full car pool.
19. Buy used
From major appliances to children’s clothing, there’s a good chance whatever you need can be found in a thrift store, consignment shop or the classified section of your local newspaper. When you are seriously in debt you can’t afford to be fussy about designer labels.
Once you get into the habit of buying “gently used” products you can profit from the foolish buying habits of others. You can buy designer jeans meant to look worn for $80 or buy well worn jeans for $3 at a thrift shop. What’s the difference? $77 dollars, that’s what – and that is $77 to apply to your debt.
20. Do not make any large purchases until your debt is paid off
You cannot eliminate your debt if you are creating it elsewhere. Focus only on finding extra money to pay off your current debt. This is not the time to buy a house or a new car.
21. Reduce your food costs
Take a brown bag to lunch. Carry snacks in your car to avoid stopping by fast food venues. When dining out, share an appetizer or eliminate that course and do the same with dessert.
Use coupons for grocery shopping only if the coupon is for a product you would normally purchase. Plan your weekly family meals around the specials offered by local grocery chains.
For holiday cooking, buy supplies well in advance of the holiday as the sales prices usually disappear during the one or two weeks immediately prior to that holiday.
Dining out and buying takeout are often the result of not planning ahead for meals. Choose one day a week or one weekend a month and cook a quantity of several main courses. Freeze in quantities sufficient for a meal and you will always have something to eat no matter how busy your day has been.
Buy cheaper cuts of meat and pull out the old crock-pot to tenderize it with slow cooking. Avoid buying convenience foods. Buy prepared frozen foods only when they are on sale.
Consider growing a kitchen garden in pots on the patio. One or two tomato and pepper plants will provide enough produce for family meals and save a bundle.
22. Cut back on cell phones
There’s a good chance that many of the cell phone minutes you use are unnecessary. Cut back to a lower priced phone plan. Use a basic cell phone rather than buying a new model every time a new fancier product is introduced.
Many cell phone providers offer a free cell phone with a one year service contract. Cut down on the extras on the phones of all family members.
23. Enlist the help of spouse and children
Debt is often accompanied by guilt. For that reason, many consumers try to eliminate debt without affecting their family’s lifestyle. This is a recipe for failure!
Enlist your family’s help in finding ways to save money and to do more with less. Remember, if you want to crush your debt you must involve your whole family and change your spending habits completely!
Even young children can grasp the concept of paying off bills before buying more “stuff”. If you present “paying off debt” as a family project rather than a crisis you will not add fear or stress but will create a family unit that can better focus on the problem.
24. Buy off season
Buy Christmas decorations after Chrismas and Easter bunnies after Easter and store them away until next year. Buy summer clothing in the fall and sweaters in late winter when the stores make their final markdowns.
When buying clothing or shoes on sale remember the purpose is to get an item at a great price. If you allow yourself to think of the savings and buy several items you defeat the purpose of sales shopping.
25. Keep your focus on money through the holidays
Perhaps nothing is more destructive to your budget and your debt as holiday shopping. The closer to Christmas you shop, the more you are likely to spend and to charge. Shop throughout the year for holiday gifts to take advantage of sales and seasonal specials.
26. Cut back on personal expenses
Create your own exercise routine and drop the expensive gym membership. If you keep the gym skip the fancy health drinks and supplements you buy there. Do your own manicures and pedicures (or trade services with a friend) rather than spending $40-80 at a salon every week or two.
When you go for a haircut skip the treatments and special coloring steps that add $100 to the bill. Add up the amount you are spending each month on personal beauty and maintenance.
Then slash it to the bare minimum. Pampering is great but you can’t afford it right now. Once you destroy your debt you will deserve a full day of pampering and can reward yourself.
27. Do it yourself – Build it yourself – Cut services
Do you go to the gym faithfully every day but hire a professional lawn service to cut your grass? Start pushing that lawnmower yourself. Need a new bookshelf?
Instead of going to the furniture store get some brackets and boards and build one yourself. Take over the pool maintenance and paint your own walls. Wash your own car or pay your children to do it.
28. Low cost family vacations
Look for advance deals and coupons for airfare, tours, cruises, hotel rooms and car rental rates and plan your vacation around those. Even better, make your family vacation environmental by choosing a camping trip to a nearby state or national part.
If you can’t afford to travel, spend a week or two of vacation time taking day trips to nearby attractions such as the zoo, museums or amusement parks.
Turn off the phone at home and limit cell phone use just as you would if traveling far away from home. When you plan special events or vacations keep your debt goal in mind. Do not take a vacation from paying off your debt.
29. Organize your stuff
How many times have you rushed out to buy an item because you couldn’t find the one you already have? Go through your drawers and closets and organize those little necessities that always seem to be missing when you need them.
30. Cancel the daily paper
Many local papers can now be accessed online for free while others offer online subscriptions far cheaper than home delivery of the paper. If you only read your newspaper on certain days of the week, buy it only on those days.
31. Use the library
If you are a reader you may be shocked at how much you spend on books each month. Instead of subscribing to expensive magazines, spend a couple hours each month in the library reading the latest issues of your favorite periodicals. Books are free at the library and the local papers are available there, too.
32. Cut your cable
If your local stations can be viewed without cable, consider eliminating cable television altogether or at least downgrade to basic cable. Scaling back to a basic package can save $60 or more a month. Cancel all the movie channels and get a cheap NetFlix membership instead.
33. Cut back on energy consumption
Always wash and dry a full load of clothing. Consider drying your bedding outdoors as your grandmother did. It’s easy and free and the bedding will smell great.
Turn off lights when you leave a room. Unplug appliances and TV’s that are “instant on” when you are going to be away from home. Those product draw power consistently even when off. Shut your computer down at night. If you have metered water be stingy about watering the lawn.
34. Maintain what you own
A tool in the garage that has been allowed to rust must be replaced even though it could last for a lifetime if stored correctly. Your car will run better and last longer if you follow a regular maintenance plan and change the oil frequently.
The patio furniture will maintain its appearance if it’s stored during winter months. Your gas grill will last longer if you cover it to protect it from the rain. Taking proper care of your personal property can eliminate the cost of replacing it.
35. Find ways to take control of your life
When your are buried with debt, you may feel your life is out of control. Fight back against your emotions by taking back control of your life in small ways. Clean your home, organize your closet, pull the weeds in the garden. One small success leads to another and builds confidence.
36. Keep a list of your “wants”
There is power in a list. If you see a blouse you want, add it to your “wants list” rather than buying it right now. Assign a priority to it by using a number from 1 to 5. Every time you think of an item you need or you want, add it to your list.
When you add an item to your “wants list” rather than buying it on impulse, you are acknowledging to yourself that you need that item. Chances are a week from now most of the items on your wants list will no longer seem important to you. The impulse has passed.
37. Eliminate your bad habits
If you are a smoker or social drinker, you may be surprised at how much you spend each month indulging your habit. You may find motivation to quit smoking when you realize how much you spend on tobacco in a year!
38. Schedule your payments due
Write the due dates of your bills and regular payments on a calendar each month and post that calendar where you will see it every day.
39. Start today and keep going
Resolve to buy nothing else on credit until you reach your debt goal. If you make a mistake, forgive yourself and keep going!
- Can you use consolidation loans to get rid of your credit card debt?
- Finding free legal advice for debt of deceased family may be necessary…
- How to eliminate your debt legally without risking a lawsuit?
- Can I use my credit card to pay off someone elses card debt, or?
- How to use consolidation and personal loans to crush your debt?
As you realize, there are many ways to crush your debt but it will all depend on how focused, motivated and disciplined you are. Remember, no one will do it for you and the sooner you start to dig yourself out of debt the faster you will reach your goal.