If you would like to do a better job of managing your debts, here’s our weekly update on things that you could do to reduce them.
1. Drop, yes drop, those credit cards. If you’re wallowing in credit card debt it may not be your fault. Maybe you had some unanticipated financial emergency where the only way you could pay for it was by putting it on a credit card. Or maybe it was your fault. You might be one of those people that just can’t resist making impulse purchases. If that was your problem and why you’re facing a mountain of debt, the first thing you need to do is drop those credit cards. By this we mean cutting them up. We don’t mean closing your accounts because that would have a negative impact on your credit score. When you stick to using cash you’ll probably find it’s much harder to make those impulse purchases. It just isn’t as easy to pull $60 out of your wallet to buy that eye-catching sweater, as it is to swipe a credit card.
2. This is going to be painful but you need to determine exactly how much you owe. Have you been letting those credit card statements just pile up on your desk or a table? Or worse yet have you been taking cash advances on one card in order to make a payment on another. The first step in managing your debts is to determine exactly how much you owe. This means sitting down and making a list of all of your debts, interest rates, payments and terms. This could be pretty scary but it’s absolutely necessary.
3. Consider getting professional help. There is some good, nonprofit credit counseling agencies out there that would be happy to help you get out of your financial straightjacket. Pick one, give it a call and you’ll be assigned a debt counselor that will spend 45 minutes to an hour reviewing your debts, payments and earnings and then help you develop a budget that would make it possible for you to pay your bills on time. If it turns out that no budget could accomplish this your counselor will probably suggest a debt management plan (DMP) built around the payments you actually could afford to make. She or he will then present this to your creditors and will probably try to negotiate lower interest rates on your debts. If all or the overwhelming majority of your creditors agree to your DMP you will no longer be required to pay them. Instead, you will send one check a month to the credit-counseling agency and it will take responsibility for paying your creditors.
4. Get rid of the fat. Here’s an exercise that could really open your eyes. Track your spending for at least 30 days. Do you buy a specialty coffee every day during the workweek at $3.95 each? Make that coffee at home and you’ll save almost $80 a month. What about your groceries, gas, gifts, clothing and utilities? Those are all areas where you could probably trim the fat. If you could cut each of these categories by just $10 a month that would be $50 you could save or invest. Also take a hard look at any habits you have that are costly such as playing the lottery or smoking. Is there a gym membership you never use? Cancel it. Cell phones are another area where you should be able to save money, as is cable or satellite TV. If you’ve watched any TV at all recently you’ve probably seen the commercials where one of the cell phone providers says it will cut your monthly bill in half. So why not take advantage of this?
5. Utilize carrots as well as sticks. Don’t beat up on yourself over your debts nonstop. Use a carrot – or be kind to yourself – periodically. You could treat yourself to a nice meal and a movie out once in awhile, save for a vacation, take a weekend trip or buy yourself that printer you’ve been eyeing. What experts say is that a debt diet can be much like a food diet. If you diet too much, you’re almost bound to go off it.
6. Find creative ways to earn more money. Do you have a bunch of stuff sitting around in your attic or basement that’s just gathering cobwebs? Sell it on Craigslist or have a yard sale. Could you take on an additional shift at work? If not, think about getting a part-time job. If you have good skills such as accounting, computer programming or graphic design you might be able to earn $20 or more an hour. Work just 20 hours a week and you would net somewhere around $1200 a month. Wouldn’t that go a long way towards helping you pay down your debts? If you don’t possess these types of skills you should still be able to get a part-time job paying $10 an hour which would net you somewhere around $700 a month. Apply that money to paying off your credit card debts and you might be amazed at how quickly you would be free of those debts.