Today is the second in a series of posts focused on America Saves Week. Yesterday we talked about making savings part of your budget plan and the ways to make it happen. Today’s focus is paying off high-interest debt.
High-interest debt is typically credit cards, store credit cards, and car loans. Credit cards and store credit cards usually charge around 18 to 20% interest. I’m including car loans because if you choose to buy a car with a large monthly payment and little or no down payment, it’s easy to run into issues with the loan since you’ve put a lot of money into something that depreciates once it rolls off the car dealership lot.
How to Do It
Stop increasing your debt
Don’t open another credit card or store credit card. Take them out of your wallet and put them away. Put plans to buy big ticket items on hold until your current debt is paid off.
Cut your spending.
First look for easy ways to cut your spending. If you stop for $4 coffee every morning, add coffee to your grocery list and make it at home. If you always buy a magazine before going to the doctor’s office, grab a book from home, bring something to do like writing thank you notes, or catching up on email on your phone, as long as it doesn’t increase your cell phone bill.
Then, depending on your circumstances, break one bigger habit at a time. If you have time, spread out your spending cut changes over a month’s time. If you need to make changes immediately, then set a goal of making one big change a day. Get help and support if you need to make big changes quickly otherwise you’ll end up feeling deprived and may increase your debt to help yourself feel better about trimming expenses.
Find a Get-Out-of-Debt Buddy
Whether it’s your spouse, a family member, or a close friend, find someone who will support you in your journey to get out of debt. This person needs to be easily contacted in case you are struggling with something and need to discuss what to do. They need to be supportive, though they should also be firmly and kindly honest. They need to understand that you will listen and make your own choices.
Figure out a payment method that works for you
Some folks, like Dave Ramsey, talk about paying off the lowest balance first and taking the savings and roll it over to paying off the next biggest balance. Others focus on paying off the balance with the highest interest rate. Go with what works for you, and don’t be afraid to switch methods at some point if you feel the other method will work better for your new circumstances.
Use large payments like tax refund and bonuses
These large payments are found money. They are not, and should not be part of your budget since they are not regular payments. Use them to help you jump start debt payment or pay off the remaining balance on a card and move on to the next debt repayment.
Sell Unneeded Items
I’ve left this one for last because selling unneeded items depends on the item and your access to a place where you can sell it. For example, I now have an extra digital camera which happens to be 7 years old. It’s not worth it to me to sell the camera given my current financial circumstances. I might get $50 for it. Instead, I’ll be using the camera to teach my children how to take pictures. If I really needed the money, then yes, I would sell the camera along with one of my lens that I rarely use. The short-term value outweighs the long-term possible use.
Tomorrow: Save for a Large Purchase
Barb is a mom of 5 kids who spends her day keeping track of socks, stuffed animals, library books, and a 4 year old when she isn’t writing about all the frugality, gardening, cooking, and reading she manages to fit in between the chaotic moments. She can be found at A Life in Balance, Frugal Local Kitchen, or on Twitter with daily doses of life in 140 characters or less.
Philaburban Mom 