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Most people carry over $1,000 of credit card debt on a regular basis and don’t get it paid down.
Everywhere we look, we see ads to spend money that we don’t necessarily have. Lenders and financiers tell us we can afford more than we actually can.
Never confuse debt capacity with spending capacity. There will always be lenders willing to loan you more than you should borrow.
The Federal Reserve reports that Americans are in $1.98 trillion of debt. That would be more than $18,000 per household. Debt has a way of creeping up on you without realizing it.
Why You Need A Debt Management Plan
The good news is that you don’t have to live with that debt forever. My last post was about budgeting your finances. That plan will also help you take back your power and pay down your debt faster.
Answer the following questions:
- Do I have enough money to do the things I want and to accomplish the things that are important to me?
- Do I manage my money and financial affairs and records well?
- Can I currently pay the minimums on all my credit cards?
- Can I make it through the month without using credit cards?
- Can I pay more than the required minimums without using credit cards?
- Am I free form worry and anxiety about money?
- Does my financial future feel robust and sustainable?
If you answered no to the above questions, you NEED a plan. It is important to keep debt at a manageable level.
First Step of Debt Management
When you find yourself having problems with debt, first take a look at your budget. Were you able to determine if there were any non-essential expenses you could reduce by establishing your budget or spending plan as recommended in my previous post?
If so, you can use that extra money to pay towards your debt. Your debt payments should be made with this prioritization:
- Secured debts that could result in the loss of your home or vehicle.
- Debts that aren’t secured but are “must pay,” such as child support, taxes, and student loans.
- Unsecured debts that are likely to appear on your credit report, such as credit cards.
- Unsecured debts that are less likely to go to collection, such as bills from doctors.
Debt Management Includes A Spending Plan
But in order to get out of debt, you must also stop using your credit cards. You might even consider canceling them!
What do you do when you are trying to get out of a hole? Stop digging!
If you continue to use your credit cards, your balances will continue to grow. It is also hard to determine if you are living within your means. The quickest way to get in debt is to live beyond your means.
Be thankful for what you have and learn to enjoy those things now. To escape from the possessions trap, you must be willing to walk away from possessions when the need arises. When your possessions possess you, your freedom is significantly reduced.
Plan Debt Reduction
There are several ways you can plan your debt reduction. Make a list of all your unsecured debts along with creditor contact information and payoff amount so you can have an accurate record of how much you owe.
Dave Ramsey suggests that you start with the smallest balance first to create a sense of accomplishment right away. Pay the minimum on everything else except that one debt and pay as much as you can on it until it is paid off.
Then use this amount to add to the payment towards the next lowest balance. And so forth. You need to apply more than the minimum whenever you can because paying only the minimum will NOT get you very far very fast. And make sure you pay all your creditors on time so you don’t accrue late fees.
Check-In With Your Creditors
You can also check with your creditors to see if they will reduce your interest rates, remove fees, change the due date, or agree to different repayment terms. You can ask if they have a hardship plan that would do those things for a temporary period of time.
Lowering your interest rates can have a dramatic effect on how rapidly you can become debt-free. Asking is certainly worth a try. If they say no, just call back again next month and ask again.
Use Software In Your Debt Management Plan
Start on this plan now rather than later. Debt is stressful and it can wear on you. This will affect your mindset and your success in life and possibly your career.
Don’t wait until you are in too deep and bankruptcy is your only alternative. If you need additional help, look for a credit counseling service provider in your area that can help you budget money and negotiate with your creditors.
In order to keep on track with your debits and credits, you can use some type of software such as FreshBooks (see a comparison with QuickBooks here). This will keep you focused on your goals and tasks while you strive to achieve them.
When considering credit counseling agencies, make sure they are members of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation of Credit Counseling (NFCC). These organizations regulate and monitor member agencies, making sure that they operate legally and ethically.
Final Thoughts
An overabundance of debt can wreak havoc on your finances and your credit scores. It can also be the cause of undue stress. By seeking help at the first sign of trouble, you can prevent your debts from spiraling out of control.
It feels so good to be debt-free and you will feel better about yourself and enjoy life much more without having debt hanging over your head. Get started and plan your debt reduction today!
What To Do Next:
Get the Master Your Money Mini Bundle and bonuses for less than $10.
- Get powerful debt reduction strategies.
- Money saving tips.
- Money affirmations to help change your money mindset.
“This I do know beyond any reasonable doubt. Regardless of what you are doing, if you pump long enough, hard enough and enthusiastically enough, sooner or later the effort will bring forth the reward.” ~Zig Ziglar