Our popular New Year’s resolution of the day is Get Out of Debt! We like this resolution, it’s healthy, it’s achievable even if it is daunting, and it’s something everyone with any debt at all should actively be trying to do. So, the first thing you need to do to get out of debt is to stop adding to your debt. So STOP borrowing money. That means no loans, no payday loans, no credit cards, no in-store financing, no big purchases that you can’t pay for in cash, stop it!
Your second step to living debt free is to get your interest rates as low as possible. This may mean transferring all of your debt to one single card with the lowest interest rate, and cutting up the others. This is the only time you’re allowed to open a new credit card is if you can find one where you’ll qualify for a lower interest rate than anything you have now, get it, transfer your debt over, if you get an interest free period then yay for that bonus, and get rid of all of your other cards. Do not add more debt to the picture.
Once you’ve got everything moved to the lowest interest rate you can acquire, get a minimum of $1000 put away in your (interest accruing) savings account. Leave it there untouched until you have a true emergency that needs it. The biggest pitfall to getting out of debt is not having an alternative way to pay for emergencies. So your debt increases every time you have an emergency and need to borrow money to pay for it. That’s discouraging, you feel like you’ll never meet your goal, and it’ easy to give up. So spend a little time paying minimum balances while you create yourself a safety net. Yes paying minimum balances will continue to allow debt to grow (unless you managed to get that card that gives you a few months interest free), but not as much as you would have if you were adding more debt to it to continue having interest rates tacked on to.
Both while in savings mode and in paying off debt mode you need to create a realistic budget, and stick to it. We touched on this in our post on saving money. You’re going to need to log how your money is being spent, look for opportunities to cut on spending and increase on saving. If there aren’t any then you need to look at getting a second job. If math is really a struggle for you (me too) then look at getting a budgeting app to do some of the work for you. You may still need to do the work of logging your expenses and income and all of that, but the app can do all of the mathematical side of seeing how you really spend your money, when you need to pay bills, and when you’ve reached savings goals. Some apps will sync up with your bank account to track your spending and income and essentially analyze your budget. Our recommendations for budgeting apps with the end goal of paying off debt are Mint, Level Money, and if you want a little more control and are willing to do a little more of the legwork yourself Wally. Don’t forget though that these apps are just telling you what you’re doing with your money already, they aren’t necessarily going to tell you what you SHOULD be doing, that part is all you. If you really want to pay off all of your debt and particularly if you want to do it quickly you may have to live bare bones for a while. We promise you WILL survive 🙂
While you’re paying off debt any extra money that comes your way (like, you know, your tax return) should be put towards paying off that debt, even if there are more tempting more fun things to do with it. You’ll have more money to spend on fun things when your debt is gone and you’re not paying for interest rates and giving away money you don’t get to enjoy. Don’t just think about your tax return, we used that because it is that time of year, but think about any extra money you may come up with, if you have things to sell on eBay or Craigslist or Etsy or to an antiques dealer, or if you get an inheritance or a settlement in a court case, or win the lottery. Pay off your debts before anything else. Multiple sites that I visited learning the tips and tricks to paying off debt informed me that people got second jobs delivering pizza and payed off their debt very quickly. If you’ve got a license, a car, and determination, why not?
If you weren’t able to consolidate all of your debt, then decide how you’re going to go about paying it off. The most logical way might be to pay for your highest interest rates first and work your way down, but it may also be the most discouraging. Many people find it more motivating to pay debts in order of the smallest debt to the largest regardless of interest rate so that they can celebrate little victories and milestones to keep them focused.
If you’re really in too deep and there’s no foreseeable way to both pay debt and have food and shelter, then it may be time to look at whether filing bankruptcy is for you. I have never done it, so I don’t know a lot about it, but it seems to be every Coloradans favorite pastime. There are different kinds of personal Bankruptcy. Chapter 7 and Chapter 13. Chapter 7 is designed specifically to eliminate unsecured credit card debt. Chapter 13 is designed to stop mortgage foreclosures, allow you to keep nonexempt property, and lower your secured debts that are worth more than the property that secures them (your collateral.) A huge difference between them is that with Chapter 13 you will probably have to pay back a portion of your unsecured debts. No bankruptcy will eliminate liens, so while it might eliminate the debt, that property can still be repossessed. Additionally, no bankruptcy can eliminate child support, alimony, or student loans unless you can pull off showing that student loans will cause you undue hardship, essentially proving that not only can’t you pay them now but that you will almost certainly never be able to pay them in the future ever. Virtually no one meets that standard. If you’re going to go the bankruptcy route, talk to a lawyer. Find out whether it is the right move for you and if so which option is going to be the best match.
My next suggestion if this is your resolution for the year is to go back and read those entries on saving money and spending less and put them into action. The more money you create out of the money you already make, the more money you can put toward paying off your debt.
Otherwise, for today:
Iron your clothes. It’s Sunday, you’ve got some time, and it’s a great way to start of the week looking your best. You probably remember your mom or grandma ironing, but when’s the last time you did it instead of throwing your wrinkled clothes in the dryer to get the wrinkles out? Ironing looks better. It’s a noticeable difference, and for me it’s a really soothing activity to smooth the wrinkles out of everything. Makes me wish I had a great big steamy hot chunk of metal to use on life.
Clean out your Attic and/or Basement. Or crawlspace even. Wherever you’ve got storage space, get in there and do some cleaning and organizing and donating or recycling or tossing out It’s hard to get rid of things, but if it’s living in storage and you don’t see ever using it again, give it to someone who will.
Do some Cardio. What kind is up to you. Go for a run, a jog, a swim, a hike, a bike ride, get on the elliptical, climb some stairs, go dancing… whatever you want to do, just get moving.
That is all you need to do for today 🙂 I shall see you on Facebook in a little while for the Question of the Day. I have been adding a Fact of the day the past couple of days, but don’t expect that to be a daily thing, I use it if I feel like the question needs some context.
A word about music: We include songs for a reason. Music helps us deal with the world, helps to soothe the soul, and gives us something else we can focus on when everything is too much. Listen to the songs we post. Even if you already know them. Listen to them like you don’t. Pay attention to the lyrics. Pay attention to what the instruments are telling you. They all have a message, they all have a purpose, they’re all chosen for a reason. If you like the song, please support the artist by purchasing the MP3 or Album that features it.
Today’s music can be found on Amazon.com:
MP3: Money Changes Everything
Album: The Essential Cyndi Lauper