By Scott Bilker
The quick way to shed debt is common sense: “ Pay for everything in cash and don’t incur any debt.” That’s easily said if you have a high household income and no kids. But not everyone has that luxury, and even those who do find it hard to resist the temptation to borrow.
I don’t anyone who purchased a home with cash. Other situations that arise—like medical and family emergencies, unexpected car failure-only add to the list of times when borrowing is mandatory. So the fact that you carry some debt doesn’t necessarily imply that you’ve mismanaged your entire financial life.
But when your debt gets to the point where protestors are showing up at the Un demanding a reduction in your burden, it’s time to consider a quick diet for debt reduction.
Step 1: Stop incurring more debt-unless it’s an
emergency.
One thing I really hate doing is telling people how to spend their money. I prefer to help people identify the best lending deals. Unfortunately, the truth is that if you want to freeze your debt, you must freeze your spending, especially if you don’t have the income to support that debt. No spending, no debt. Real simple.
Step 2: Evaluate
your financial condition-get a plan.
“ If you fail to plan, you plan to fail,” goes the old saying, and it’s true. Creating a plan involves many steps, like taking a close look at each and every creditor you owe, understanding exactly how much it’s costing you to have each particular debt, and reviewing your payment history with all creditors. Did you pay on time? Who charges what for late fees? Etc.
Your plan must be a roadmap that takes you from debt to debtless. To do that you need to know how much your total debt is and how long it will take to pay off, given your current payments. Once you know that, you can look forward to a specific target day when your debt is gone.
Step 3: There are money-saving options available, so keep your eye out for those opportunities.
Ever notice that when you
become interested in buying a particular car you suddenly see cars of that
model driving around, where before you didn’t see any? Well, those cars didn’t just get there;
they’ve been there all along. The same
is true when searching for debt-reduction options. As you start to dig into debt management and
closely examine your situation, you’ll start seeing opportunities to save
money, like low-rate credit card offers that you find in your mailbox almost
every day.
In fact, the single best
place to evaluate these offers resides at Green’s sister site, bankrate.com. There, you’ll get an instant look at the
average rates on various types of card, as well as links to the best credit
card deals, the best credit cards for frequent fliers, the cards with the
lowest intro rate, and much more.
Last year, banks mailed
some 2.5 billion of these offers. Many
of them will save money if you transfer debt from a higher interest card, but
you need to read the fine print and be able to calculate if their offer is
truly something you can use to your advantage.
Stay tuned for future articles to learn how to evaluate those
offers.
Step 4: Take Action!!!!!!
Knowledge is useless
unless you put your plan into action.
Don’t be lazy! Formulate your moneysaving plan today and follow through
on it! Simply knowing the route form
your home to your destination won’t get you there until you actually start
traveling.
Step 5: Track credit card offer s and loan offers.
You know those low rate
offers I was talking about before? Well,
you need to track the and save them in a box or file. When you need to turn to another bank for
cheaper financing, you’ll have already done the research and know which banks
to contact-you may even be pre-approved for some. Also track offers from your existing credit
accounts. They’ll be the easiest to take
advantage of since you already have a history with them—hopefully a clean,
on-time payment history.
The difference the rate
makes can be staggering. Say you owe
$20,000 on a credit card at 18% and you want to pay off the whole thing in ten
years without ever borrowing another cent.
You’re looking at monthly payments of $360.37- a total of $43,244! But if you put that same debt on an 8% card,
your payment is a much more manageable $242.66, and the $29,119 total saves you
more than $14,000 in interest.
Step 6: Don’t be hasty in closing credit-card accounts.
When you cut up your
credit cards, you cut out your options.
As long as your current credit-card accounts (and lines of credit)
aren’t charging you any fees for inactivity, then it’s in your best interest to
hang on to that account. What I do is
put zero-balance cards in a file called “ credit-card graveyard”. When they notice that I’m not using them and
send an offer along that saves me money, I “exhume” them.
The problem with closing
your accounts is that you’re at the mercy of whatever bank(s) you decide to
keep. That’s the same as saying that
you’ll shop at one store no matter how good the prices are at other stores. Don’t give any bank a monopoly on your
business; keep your options open.
Step 7: Pay on time—no matter what it takes!
If there is sin in debt
repayment, it is paying late. The late
fees hurt you immediately, and would be better used to reduce your debt. They’re also a strike against your future
bargaining power. But most importantly,
if you pay late you may not be able to get the best rates and deals when you
need them most, like on a mortgage. In
the long run, that kind of negligence can cost you thousands of dollars. I would, and have, borrowed money to make
sure my payments get there on time. The
result is that my rates have been under 8% APR for all my credit cards for over
ten years.
Debt management is a
continuous process so stay on top of your situation and keep more of your
money.