Getting Out of Debt
Simple Tips for Debt Free Living
The first thing you should know about getting out of debt is where to focus your efforts.
There are three general categories of debt: good debt, acceptable debt and unacceptable or bad debt.
Let's review...
Good Debt
Good Debt is something like a home mortgage or a student loan. It is a debt that is acceptable because you get something for your money - an education or the benefits of home ownership.
Acceptable Debt
Acceptable Debt is not necessarily good debt, but most people have it and it is generally accepted. An example of acceptable debt would be a car loan.
Bad Debt
Bad Debt or unacceptable debt is what you should avoid at all costs. The best example of bad debt is credit card debt.
Managing Debt
As long as you make your payments on your Good Debt it will not have a negative effect on your credit. Enough said.
As far as Acceptable Debt is concerned you should keep it to a minimum, using it only for necessities and, of course, make timely payments.
What really needs some attention, is Unacceptable or Bad Debt. That is what I would like to focus on here.
Living beyond your means is a dangerous game to play. If you have over-extended yourself, it's time to get organized and start getting out of debt. Here's how you can start working to eliminate credit card debt:
Cut up all but one major credit card to keep for emergencies only - and a great sale on cashmere sweaters does not constitute an emergency. Do not charge anything else to a credit card unless you absolutely have to. If you can't pay for it right now, don't buy it. Concentrate on paying off the card with the highest interest rate first and work your way down to the card with the lowest interest rate. Contact each credit card company and ask them to lower your interest rate. The worst thing they can say is no - which will just give you more incentive to pay the balance and close the account. Pay at least the minimum payment required on all of your cards each month to maintain your credit rating. Pay more than the minimum payment required - as much you possibly can - on the card you are currently working to pay off. As you get each account paid in full, contact the company and have the account closed. Make sure they mail you a confirming letter for your records. If you need help, see a debt counselor. Many are free and will set up payment arrangements for you. You'll get a step by step plan for getting out of debt, as well as guidance whenever you need it.
Make a budget to determine how much money you can set aside for credit card payments each month to work on getting out of debt. A budget will also help you to understand how much money you can afford to spend on extras. That knowledge will help keep you from accumulating credit card debt again.
Debt Management Solution
There is a way to use credit cards wisely, but you have to be disciplined or it will not work. If you lack the discipline to avoid accumulating a higher balance than you can reasonably pay in one month or if you are currently working on getting out of debt, there is no credit card program out there that is worth ruining your credit over.
There are so many credit card offers on the market. Cash back, bonus points, airline miles, the list goes on and on.
Credit card companies try to make their programs as appealing as possible hoping that you will use their card to try to earn the benefit they are offering.
They are also banking on the fact that you will over-extend yourself and the interest they will collect from you will outweigh the reward they give you. Don't fall for it.
If you have the discipline and the financial means to pay your account in full, by all means, take advantage of the rewards! Find a credit card that offers a reward that you will truly benefit from and use it as much as possible.
I hardly ever use cash. I have a credit card that sends me a check automatically with my statement each time I have accumulated at least $100 in cash back rewards. I use that card for groceries, gas, drug store purchases...I even use it at fast food drive-through windows!
Why? Because I know that I will pay that balance in full. Why would I pay with cash and get no advantage, when using that credit card earns me cash back?
It's like buying everything for a discount! The savings really add up when something is already on sale. I get the sale price plus the cash back from my credit card. It's a win-win!
Getting out of debt is hard work, but it all really boils down to common sense. With these simple tips I know you can do it!
|
