Digging your way out of debt

ORIGINALLY WRITTEN AMANDA KNOLES
More people than ever before are finding themselves buried in debt. Whether you’re a shopaholic, or you’ve been living on credit after losing your job, endless bills and rising interest rates can seem overwhelming.

When you are serious about paying down your debt, it’s important to make a commitment to change your spending habits.

List all the things you buy for a week and search for ways to cut back. Instead of spending $7 or more for lunch daily, brownbag it and set aside the money you would have spent on lunch to put toward paying off a credit card. At the end of the month you should have $100 or more to help pay off debt.

As you track your spending, you may be surprised at how much you are actually spending on items such as snacks, magazines and CDs.

It’s easy to get into the habit of paying for everything with credit cards instead of cash. The problem is, credit cards lead to more impulse purchases. Force yourself to pay for purchases with cash as much as possible.

If you must use a credit card, make an effort to pay off the purchase when the bill comes due.

Go through all of your credit card bills and determine which cards have the highest interest rates and largest balances.

Take advantage of credit card offers that allow you to transfer balances to a card with a lower interest rate. Just be sure that rate won’t increase after a short introductory period.

If you are barely able to pay the minimum due each month, call your creditors and negotiate a lower interest rate. Many credit card companies will agree to lower your rate to keep your business. If they won’t, research other companies that will transfer your balances and offer a better rate.

Stop adding additional debt to the cards you have. Don’t open new department store cards to save 10 percent on a purchase. Revolving credit is a trap that ends up costing you more in interest charges.

If your credit is good enough, you can apply for a personal loan and consolidate your debt. Instead of paying several creditors, you will be paying off the loan bill each month.

If you can’t qualify for a loan, you may want to talk with a credit counselor about a debt consolidation plan. Credit counselors may be able to negotiate lower payments with your creditors, particularly if you have lost your job, or if you are struggling with hospital bills or another financial hardship.

Create a budget and stick to it. Make a list of the money you bring in each month and the money you pay out including utilities, rent or mortgage payments, car payments, gas, groceries and insurance. Set aside an emergency fund for appliance and car repairs. Allow yourself a specified amount of cash per week and try to avoid using your ATM card.

If you have several credit cards, your priority should be paying off the card with the highest interest rate first. Pay more money toward that card and slightly less toward the others. Once the highest card is paid off, increase the amount you pay on the next highest interest card, and the next until each one is eventually paid off.

One proven method for paying down a high interest rate card faster is to make a payment twice a month if you can afford it. Making a payment every 14 days will result in an extra month’s payment you’ve made by the end of the year.

Schedule the payments around your statement cycle to avoid paying late fees. Whenever possible pay more than the minimum payment due to reduce your balance on other cards.

When you have reached your goal of paying off all your debt, close out all of your credit cards except for one or two with the lowest interest rates available. Those cards should be used sparingly when you have to rent a car or make an airline reservation.

In the future when you do use a credit card, you should make a strong effort to pay off the balance when the bill arrives.

Some people take out a home equity line of credit or second mortgage to pay off their debts. Be careful and negotiate the best interest rate possible. Make absolutely certain you can make the loan payments since you are using your home as collateral.

When you finally get your debts paid off, take the same amount of money that you were paying toward bills and put it into a savings account.

As you begin to accumulate more savings to use for vacations, education, buying a home or other goals, you may find it less tempting to get into debt for impulse purchases.

Copyright (c) 2005 Publishers-Edge

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