There is nothing fun about debt, especially if you’re behind on payments. You can’t snap your fingers and make debt disappear. But you can get realistic and develop an action plan to remedy your balances and take control of your finances. Overspending is a common cause of debt. Many people live way above their means and cannot deny themselves material possessions. The aftermath is usually guilt and anxiety.
If you’re fed up with opening your credit card statements and seeing a high balance, here are five steps to jump start your debt elimination.
Know what you owe.
Some people can only estimate the amount that they owe, and they don’t want to face reality. But coming to terms with the gravity of the situation is the only way to move forward. Grab your statements or check your balances online. On a sheet of paper, write down the amount you owe each creditors. Include your current interest rate next to each creditor. Add up your balances to reveal your total amount of consumer debt.
Track your spending.
Identifying where your money goes can help you get to the root of debt. Carefully read each line of your credit card statements and circle every impulse or unnecessary purchase. Tally up these figures to see how much you spend on non-essentials each month. Do the same for your checking accounts. Thus, you know exactly what you’re spending your money on each month.
Prioritize spending.
Reign in spending and live within your means. Review your budget. Add up your recurring monthly expenses and subtract this figure from your take-home monthly income to determine your disposable income. Recurring expenses include housing, minimum loan/credit card payments, transportation costs, food, utilities and any other essential monthly expense. Currently, you may spend your disposable money on shopping, recreation or entertainment. Think of how much you could reduce your balances if this money went toward consumer debt. Let’s say you have an extra $300 a month. Apply this money to your credit cards each month and pay off a $5,000 balance in about 17 months.
Turn to your lenders for debt help.
If you have a good credit score and keep up with monthly payments, you might be in a position to negotiate a lower interest rate. This reduces how much you owe in interest, thus helping to lower your principal balance faster. Call up your lenders and request a better rate. They might decline your request, then again, they may reduce your rate on-the-spot. It all depends on your history with the creditor. Maintain timely payments and you’re likely to get a break on the interest.
Stop spending.
A debt elimination plan is pointless if you’re unwilling to give up credit cards. Do whatever it takes to curb spending. Stash credit cards in a place other than your wallet or slice them in half. And if you must use a credit card, pay off new charges with your next payment.