In the past, credit has been too easy to get. Credit card companies and short term lenders, and/or the financial entities, banks, etc. behind them, make a LOT of money. When you look at their interest rates and fees, it’s easy to see why they make so much money! So they push credit cards on the public, on anyone with even half- way decent credit.
The temptation is almost irrestible. See anything you want? Do not have the cash at the moment? No problema! Just put it on the plastic. Run out of money prior to conclusion of the month? Just get a new payday loan, right?
Mounting debt, to the point it is getting overpowering, is one of those things in life which may be simple to get into, but a great deal more difficult to get free from. Still, those high aprs and fees can cost you a lot of money, siphon off your cash and keep you heading down the short- term debt treadmill for the rest of your lifetime, if you don’t Move and DO something about it.
Sheesh! How did I get into this position? Someone please help me get out of debt!
You ask, “Please help me climb out of debt! ” O. K. But YOU got yourself into debt, now it’s under your control to get yourself out. Here is how.
1. Let’s get clear about the terms. There is “bad” debt and “not-so-bad”, even “good” debt. Bad debt is anything with high aprs, say, over 9% per year. Good debt is low- interest debt which you got into to get your hands on something of increasing value, like a house or university schooling.
What you want to accomplish first in paying off debt is to eradicate the bad toxic credit card debts. For most people, that means you want to get out of credit card debt.
2. When you want to get rid of your “bad” debts, the first step is to take an inventory. Make a detailed list of all your credit card and other short-term debts. Write down the name of the bank or credit card, loan or department store, the total balance owed to them, the minimum monthly payment, and the effective annual interest rate.
You get the interest rate by dividing all the fees charged to you on that account for the latest month, by the total balance owed. That will get you the real interest rate per month. Then you multiply that monthly number by 12 to get the annual interest rate.
Now, take the half of your credit cards with the highest interest rate, out of your wallet or purse and hide them somewhere so you won’t use them again.
3. Make a chart. Add up the total loan balances in your list, above, and begin a graph, with short- term debt amount along the vertical axis and calendar months along the horizontal axis. Make a dot on your chart to indicate just where your debt balance is NOW.
As you go along in the foreseeable future, you will need to to need to add up your total balance each month and mark it on the chart, drawing a line from new dot to the last one, to create a graph to show you just how you are doing.
4. Now budget your income minus subsistence costs in order to meet your minimum payments, PLUS make as large a payment as you are able to make towards the charge card or other account with the highest interest rate. If the highest cost credit card is costing you 28% per year, consider of it as an investment you may make with a guaranteed 28% annual return! That’s an excellent investment return for you, right?
Now just keep on with that formula. Budget your expenses, chart your total balance owed. Make your minimum payments and pay as much as you can on your highest interest rate credit card or other account. Keep on until they all go to zero! Then you wil be out of all “bad” debt, and can finally breathe free!…
