Credit card debt is a treacherous trap! Whether it comes on in a flash of lightening or creeps up like a long winter snowstorm, the havoc it wreaks can feel like a tornado has ripped through your life.
The worst part is, the pain you feel as if you are forever stuck in oblivion without any other options of being able to pay and get out of it. Living a life to get collection calls from agencies.
It is a hellish feeling, I should know; been there done that. But I’ve just been quite lucky to make it to the other side. But not without a great deal of anxiety and sleepless nights. Let me tell you few things to remember if you are going through the same situation:
Always note that you have options. You have a choice on how to handle your credit card debt. Credit card debt does not have to be a financial death sentence.
Asking what options? There’s a lot! But let’s focus on the one that can help you lower your interest rates and shorten your repayment period: debt consolidation.
With the proper way of doing it, debt consolidation can be the key to taking control of your credit card debt. Done without a plan, debt consolidation can, unfortunately, lad to a more disastrous situation. That’s why it is important to choose your options and carefully plan as you go along.
The idea of credit card debt consolidation is simple. Basically, you obtain a new loan or line of credit to pay off one or more credit cards. This will give you the leeway to pay only one monthly payment instead of multiple amounts with higher interest rates.
There are things that you need to watch out for, though, when consolidating your credit card debts. One of the biggest problems with credit card debt consolidation is that it doesn’t always require you to enter into a repayment plan. If you consolidate with a line of credit, such as a balance transfer credit card, then there’s no reason you can’t continue making the minimum payments every month. Don’t do that! Those minimum payments won’t get you anywhere. Credit card minimum payments are designed to keep you in debt as long as possible – even balance transfer credit cards. If you obtain a balance transfer credit card, it’s up to you to create a payoff plan. If you don’t you could end up in a cycle of balance transfer credit card churning.
Successfully paying off debt is all about strategy. Employ the strategy that works for you and always bear in mind – you have the power and the control to decide how you want to pay off your debt!
If you are bound to resolving all your financial woes, you need to have a mindset that says “I will be free from debt now”. Yes, it could be easier said than done, but with sheer determination, nothing can’t be achieved. Let me help you with few steps to finally resolving your financial woes!
The first and most important step in developing and following a financial plan is to examine your attitudes about money. Ask yourself the following:
- Are you ready to accept responsibility for changing your financial situation?
- Do you believe that you can and will change the way you make financial decisions?
- Can you identify at least one benefit you hope to gain by changing your money management behavior?
If you positively respond to these questions, then you are ready for and able to start your path to financial wellness.
Assess your financial situation
Start your journey with a self-assessment designed to motivate you. Completing this simple quiz can help you assess your current financial situation.
Clearing out financial mess
Getting yourself financially organized is a great way towards financial wellness. But before you clean up, you should also know that some things are worth holding on to. Note on the following to keep:
– Grocery receipts and other nondeductible expense receipts and statements can be destroyed after they have been recorded for budgeting purposes.
– Paycheck stubs should be checked against your W-2. If it’s a match, you can toss them.
– Canceled checks should generally be saved for three years. Keep those related to your taxes and business expenses permanently.
– Utility bill stubs may be destroyed after recording, however, you may wish to hold onto these for a year to compare monthly costs.
– Household documents pertaining to buying, selling or improving your home should be kept as long as you own the home.
– Receipts from major purchases should be kept as long as you have the item.
– Credit card receipts can be destroyed once you have reconciled with your monthly statement. Additionally, credit card monthly statements can be destroyed on an annual basis.
– Individual tax return documents should be kept for seven years, according to the Internal Revenue Service (IRS). The IRS has three years from your filing date to audit your return if it suspects good faith errors. However, the IRS has six years to challenge your return if it thinks you underreported your gross income by 25 percent or more.
Finally, before taking out the trash, be sure that all identifying information has been destroyed to avoid your personal information falling into the wrong hands.
As we approach the second quarter of the year, let’s try to shy away from the mistakes done and start a clean slate by focusing on what can be done now to improve the financial situation. For most us, a better quality of life translates to more money. Here are few tried and tested tips to share with you:
Create a Budget
Budget can become overwhelming, but if you make a monthly budget and stick to it, you can identify areas where you overspend and save big by controlling spending or simply by using money wisely. Write down monthly income (after taxes) and itemize monthly bills and other expenses. Don’t forget about the “little” things like daily coffee or fast food lunch – they add up.
“Spring Clean” Your Finances
You can dedicate an hour over the weekend to review all your current bills, or, you can thoroughly review bills as you receive them, keeping an eye out for hidden fees and services you don’t need or want. If you find questionable charges, investigate them.
Maximize the Value of Coupons
Learn about the potential savings associated with extreme couponing. Pick up a Sunday paper, browse through all the ads to find coupons on items you regularly buy. But don’t stop there. Keep an eye out for store sales on items you buy the most, and incorporate your coupons to increase the savings.
Reduce Entertainment Expenses
Entertainment is a necessary expense. However, it’s also necessary to avoid overspending in this area, especially because it’s easy to get carried away. Check one of the many daily deal websites and see if you can find discounts on places that you visit or would like to. You can often save 50 percent on dining and local activities simply by planning ahead and printing a voucher.
Commit to Fresh Foods
Buying processed foods is more convenient, but buying fresh will save you money and improve your health. You may need to spend more time in the kitchen, but if you make meals in bulk and freeze for later use, you can enjoy the health benefits and savings of eating fresh without “slaving over the stove” everyday. Visit your local farmers markets and make it a point to visit them weekly. You’ll find the highest quality of fruits and veggies at low prices.
Once you’ve identified and implemented ways to save daily, direct those savings towards paying off debt so you can reduce interest charges and improve your credit. And if you haven’t yet started saving for retirement, now is the time.
When it comes to your finances, a few dollars a day can make all the difference in reducing debt, saving for the future, and improving your overall quality of life. Everyone has the power to change, and saving 50 cents at the grocery store could be your first step to a life of financial freedom.
Budgeting is simply the act of working out how much money you’ve got coming in (EARNINGS) and then as accurately as possible figuring out how much you have to pay out (EXPENSES) on fixed costs such as rent, bills and so on to then come up with how much you’ve got left to spend on everything else (DISPOSABLE FUNDS/INCOME).
In simple math terms basic budgeting looks like this:
INCOME + FIXED COSTS = DISPOSABLE INCOME
Budgets can be calculated over a variety of time periods, such as a month, term or even a whole year. Most students have very fixed incomes made up from their Maintenance Loan or Grant, plus whatever they may get in the way of parental support or from a part-time job, so calculating income is usually pretty easy.
The trick comes when trying to figure out your expenses, breaking it down into the fixed costs that are known (for example rent is a ‘known fixed cost’), those fixed costs that are estimated (such as utility bills which can be guessed at based on how much was paid in the previous year) and then essential costs but based on educated guesswork. How much you are going to spend on food per month would be an example of an essential cost.
It’s also important to be strict with yourself about what are and what are not ‘essential’ costs. Whatever is left over after covering your essential costs what you are going to have left to pay for everything else.
Everyone is different, the important thing is to take full stock of your personal income and expenditure – being as honest as possible – and seeing if it leaves you with any money left over. If it does then it’s a case of making that remaining disposable income last (i.e. not overspending). However if after drawing up your budget you have more money going out than you have coming in then you only have two responsible alternatives: You can –
- Increase your income.
- Reduce your expenditure.
It can be difficult to track the small daily expenses (such as cups of coffee, sandwiches, car parking and so on) so here are a couple of tips to help.
1) Pay cash: Debit cards are very easy to use for even small purchases nowadays and you can spend money on them without ever really noticing the total impact on your bank balance. So take out a fixed lump sum of cash each week and commit to only using that cash for your ‘impulse’ spends on a day to day basis. You’ll realize how quickly you’re burning through your disposable income!
2) Cut back: Why pay for coffee when you’ve got a thermos flask or for sandwiches from a shop when you can take in a packed lunch? The simplest way to manage impulse spending is to stop it altogether or reduce it to an absolute minimum. Changing habits can be challenging but the savings can be rewarding.
I was thinking it would be a great time to take a look at comparing the amount you owe as well as how to create a healthy debt repayment arrangement. Obviously, this only works if you commit to spending less than what you earn. If you’re spending more than what you earn, this will cause pile up of debt – which eventually lead to a more serious financial problem.
To get you started, you need to write few items. Doing some tasks by hand adds personal touch and commitment and importance in what you want to do. You will also need to have all the latest statements of what you owe, from bills, credit card, and consumer loans. Analyze the interest rate on each.
You must make a chart with four columns consisting of each debt, amount you still owe, monthly payment, and the current interest rate on each debt. Make sure to get all the information from all the statements. The goal here is to have all your info in one spreadsheet.
Once you have the list and check which of the debts to be prioritized. Go through that list and number the debts based on their interest rate. Give the highest interest a big number 1 off to the left, the next highest a big 2, and so on. Don’t worry about which debt has the biggest balance – that doesn’t actually matter when figuring out which debt is the most important one to pay off.
Once you’re done with the order of debts in place, go to the debt marked with numbers. If it’s a credit card debt, call the credit card company and ask for a rate reduction, or transfer the balance to another card for a lower rate. You can also pay it off with a home equity line of credit or with a personal loan from your credit union. Consolidate your loans at a very low rate. The key is to lower that interest rate. Go through every one of your debts from highest to lowest interest rate and do your best to get each rate nice and low. Obviously, there are some rates you’re likely to be unable to easily change, like your mortgage rate, but see what you can do about most of the rest of them.
Over time, you should be eating away quickly at that top debt, and you’ll be able to eliminate it. Cross it off the list, then start hammering away at the new top dog on your list.
Whenever a debt adjusts in interest rate, cross it off the list, then add it back in just like a new debt where it belongs based on the new interest rate.
After you do this a few times, it’s useful to rewrite the list so that everything remains clear on it, but it’s fun to hold onto the old one (with some crossed-out debts) to remember where you came from.