By Ryan Levin on December 15, 2011
.jpg.aspx) Living in debt is no fun. Bills pile up month after month, making even minimum payments becomes stressful and thinking about the future can be a nightmare. Debt is debilitating, but it isn’t an inescapable prison. Getting out of debt is possible. It takes willpower and determination, but the thought of a debt-free life might be all the motivation you need to stay disciplined and get out of debt.
If you’re serious about ending your debt, the number-one step is to stop using your credit cards. Just don’t use them, and don’t borrow money in other ways either; you can’t move forward if you’re moving yourself backward with every purchase. Hide them from yourself, put them out of reach—do something to get your credit cards out of your wallet and off your mind so you won’t be tempted. Get in the habit of spending only what you already have, even if it means more packed lunches and fewer nights out.
The next step is to gather all of your credit cards and arrange them by interest rate, highest to lowest. Every month, make the minimum payment on each one, then take all your extra funds and pay off the account with the highest interest rate. And when I say all your funds, I mean all of them, including your savings. It’s okay to leave a little emergency fund for unexpected repairs or medical bills, but if your goal is long-term returns, you’ll do better to pay off your debt and save yourself from those steep interest rates, instead of keeping your dollar in savings where it earns pennies a year, if that.
And that’s it. When you get the highest-interest card paid off, move on to the next one. As you pay off your balances, your minimum payments will get lower, you’ll have more assets to devote towards getting out of debt, and the process speeds up. This technique is called the “avalanche” method, and it’s mathematically the quickest and most efficient way to become debt-free.
You can speed the process along even more in a few ways: if possible, transfer money from high-interest cards to low ones so you can pay less while you’re paying back debt. You can also call or write your creditor and ask for a lowered interest rate; emphasize your loyalty to the company and talk about your current financial hardship, and you might be offered a lower rate.
Above all, if you want to get free in a hurry, getting out of debt needs to become your number one priority. Making personal sacrifices now will lead to increased freedom and peace of mind later, and there’s no better time to start than today. |