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Do you feel as if debt had you backed into a corner of the ring and was punching you unmercifully? Big debt can be an unrelenting opponent. The minute you feel you’ve escaped its grasp, there it is back again in the form of yet another late payment notice along with a big fee. But you really don’t have to take it anymore. You can fight back and actually knock out those debts. It may take some time but the sooner you get started the better. And as the old saying goes, there’s no time like the present. Here are seven things you could do today to begin overcoming those debts.
Cut up all your credit cards but one
Stop reading this article, go to your billfold, pull out all of your credit cards, get a pair of scissors and cut up all of them but one. The reason you’re having a problem with debt is probably because of the way you use credit cards. This means the best first step is to get rid of them. It’s acceptable to keep one but you should do as one woman did and that’s put it in a small plastic container and stick the container into your freezer. That way you would have the card to use in the event of an emergency but it would be tough enough to access that you wouldn’t be tempted to use it for some impulse purchase. A credit card can be a useful tool if you use it sensibly – which means never charging anything unless you know you can pay it off at the end of the month. Conversely, if you’re making multiple charges that you can’t pay off within 30 days and are carrying balances forward, you’re not only creating debt, you’re piling up interest charges that could keep you in debt practically forever.
Open a savings account
If you don’t have a savings account you have no way to protect yourself against emergencies such as an automobile accident or serious illness. As the old saying goes, stuff happens. And it’s inevitable that you will have an emergency sometime in the next couple of years. If you have a savings account as an emergency fund, you could pull the money out of it to cover that unexpected expenditure. If not, your only alternative would be to borrow money to pay for the emergency, which means just taking on more debt.
Get a debit card
Maybe you can’t actually do this today because your bank or credit union may be closed. But if you can’t do it today, do it the first business day. The card should be tied to your savings account so that you can’t spend any more than is in that account. A debit card works much like a credit card and can be used almost any place that accepts Visa or MasterCard. A debit card provides an easy way to track your spending. You should also be able to go online and check your balance at least daily so you will know exactly how much money you have to work with until your next payday.
Download a budget tracking app or buy a notepad
If you have a smart phone, there are numerous expense tracking apps available for iPhones, Windows phones and Android phones. The minute you finish reading this article, go online and download one. Most of them are free. The ones we like include Mint.com and Expensify. Mint will not only help you track your spending but has numerous other features that could assist you in your fight with that old devil debt. For instance, you could type in the numbers of your bank accounts, investments, credit cards, and any personal loans. The program will then display all your important financial information together as one big picture.
Expense tracking will be a bit more difficult if you don’t have a smart phone but there is still an answer. Get a pen and notepad. Whether you use a notepad or smartphone app the important thing is to make sure you start tracking all of your spending, right down to that donut you buy on the way to work.
Write down some goals
What is it you would like to achieve in life? Would you like to buy a house? Go on a really great vacation? Get a new car? You need to sit down and spend some time thinking about what’s important to you or what are your goals. Then write them down and post them someplace where you would see them every day. This accomplishes two things. First, it will make it easier for you to stay on the budget you’re about to create and second, this will help keep you motivated as you see you’re making progress towards achieving your goals.
Make a budget
You won’t be able to make a true budget until you track your spending for at least 30 days. But today, you can get out your check book and any receipts or credit card statements you have and add up your spending the best you can. Make sure you also include your fixed monthly expenses such as rent, debt payments, and auto loan (if applicable) and so forth. Next, add up your monthly earnings and compare the two. The odds are you’ll discover that you’re spending much more than you earn.
Decide where you can make cuts
The only way you can start to get debt under control is to reduce your spending until it’s less than your income. In fact, it should be at least 10% less than your income. How can you do this? You need to go back to the list you made of your spending and try to make cuts everywhere you can. You might start with your “variable” expenses such as food, entertainment and clothing. These are categories where most people find they can make cuts. You also need to review your “fixed” expenses such as rent and that auto loan. Start with the idea that nothing is sacrosanct – that you should be able to make cuts in almost every category.
That’s it for today
If you’ve followed our suggestions and have done the seven things we recommend you do today, you’re off to a very good start in defeating your debt. Tomorrow, you will need to use that smart phone app or notepad to begin tracking your spending so that you can create a real budget. As we noted before, you will need to track your spending for at least 30 days then sit down and organize it into categories. This will give you a true picture of your spending and of those areas where you might be able to make even more cuts. The money you save should be divided between your savings account and paying down your debts. One of the best ways we encounter for paying down debt – especially credit card debt – is called the snowball method. Follow it, and you could be completely out of debt in two years or even less. The following video explains some other ways to get out of credit card debt you might find helpful.
