Time to get yourself out of debt!

We all know that we should do it. Get rid of that debt. Do you know how?

The first step is to put away the credit cards. You will not be able to get out of debt until you first learn to live within your means. You cannot afford to try and keep up with the Jones. You have to give up the dream of a new car every couple of years. You have to give up that trip to Bahamas every year. You have to stop shopping because you are bored and have nothing else to do. Maybe you can only go out to dinner once a week instead of three times a week. Everyone holes that they can plug in their budget.

Even if you are paying off your credit card every month it is a good idea to switch from the plastic method to the cash method of payment. Studies show that individuals spend approximately 30% more when paying with a credit card than paying with cash. If all you have in your pocket is $75 cash, you know that all you can spend is $75. If you pay with a credit card there is no reason that you cannot spend $100 or $120 and worry about coming up with the money later. There is a disconnect when we lay down that credit card as opposed to laying down that $20 bill.

Once you determined where you can trim the expenses in your spending habits apply that extra income to your debt with the smallest balance. Pay the minimum balances on all other debt. Be careful to avoid late fees and over-the-limit fees. Keep applying all extra money to this smallest debt. Send the payment to the credit card company on a weekly basis. This means the interest that you pay will be less.

If you receive a refund or work overtime apply this money to that debt. Make a game of it with your kids to see who can find the most extra money. Hold a garage sale or sell something on ebay. Clean out your closet and sell clothing at the local consignment shops. Surf the Internet looking for tips on frugality and ideas for saving money. Look on this web site for the previous article written about starting a part-time service business.

Once this smallest debt is paid off take the payment you were making on that debt and apply it to the next smallest debt. This is in addition to the minimum payment you were already making on that debt. This payment system has a snowball effect as the payment you are carrying to the next debt gets bigger and bigger. You can work your way through paying off every single debt, including your mortgage.

As you pay down your debt you are not going to stay out of debt unless you also work towards building a savings. If you have no savings as soon as someone needs to go to the doctor’s, the brakes go on the car or Christmas “all of a sudden comes around” you are going to find yourself reaching for those credit cards again. Even though you want to get out of debt as quickly as possible take a portion of that savings from cutting your expenses and put it into a savings accounts. This might just be the change out of your pocket every night or set aside a couple of dollars a day. Start with something and be consistent.

Ideally you will actually have several savings accounts. Set up one for each reason you are savings for. One for Christmas, vacation, automobile repairs, house repairs, emergency fund, new furniture, tuition, property taxes, whatever you need to pay on an irregular basis. All those things that you would normally run to your credit cards for you are now going to save for in advance. Determine how much you need in the account on an annual basis, divide that by the number of paychecks and that is the amount you should be putting in the savings account each paycheck.

Make this easy on yourself and set up automatic transfers into these savings accounts. You will not even have to think about doing it. You will not miss the money because it will not have been there to start with. Make this money difficult to get at. Do not have an ATM card for these accounts. Have them located at a different bank than where you normally do your banking – maybe even use one of the online banks that pay a better interest rate.

The change here is as much a mindset change as anything else. We are a nation of instant gratification. Who says that we are entitled to everything and that we are entitled to it now? Take control of your life. Do not let your money control you.

You are not going to get out of debt tomorrow. It will take time, work and patience. It is well worth the effort. For some it may take a couple of years. For some of you it may very well be a decade. I suggest you get a big piece of poster board and write down the debts in the order you will be paying them off. You will get so much satisfaction out of being able to cross yet another debt off when it is paid in full. It gives you a very visual means of seeing how far you have come and will help keep you motivated.

Get a second piece of poster board and make it your dream board. Write down all the fun things that you are starting to save for and use a bar graph to show how close you are to reaching your goal. This too will help keep you motivated. You need to look at this board when you are trying to decide if you want to order takeout yet again or if you should get something out of the freezer for dinner.

If you need help with formulating a debt management plan call our office for an appointment. Be sure to ask about our free one hour consultation.

Why Gerri Harrison Financial Services?

Gerri Harrison Financial Services is an incorporated business involved in all areas of financial services. It is our mission to provide you with a lifetime of services. We want to be part of the family. We want to pack your child off to college and you off to retirement. We want to be there through the christenings, weddings, illnesses and deaths. Whenever there is a financial matter you have a question about, I want the first thing you think of to be "Gerri will know how to handle that".
 

So, are you ready to start your personal financial planning process?

Call me today - Gerri Harrison - (607) 729-4144

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