Don’t feel ashamed if you’ve fallen into serious debt. Many people have. One recent study reported that the average American carries 3.5 credit cards and owes more than $5,000 in credit card debt. When you add in all the other forms of debt this grows to an average of more than $47,000 per American.
Learn from others
Other people who have been in the same boat have managed to pay off their debts. For example, one 25 year-old woman who was $14,000 in debt was able to pay it off in a year. She used the snowball strategy for paying off her credit cards. If you’re not familiar with the snowball way to pay off credit card debts, here’s a short video that explains it in detail.
She used the free debt payment tool readyforzero.com to come up with an affordable payment plan and time tracked her progress. As you might guess, she had to give up some of her “luxuries” such as tanning salon visits, her health club membership, dining out as often and going to movies. She also found ways to increase her income.
The danger of denial
A second woman managed to go into denial about her $30,000 student loan balance. When she finished graduate school and received her first bill, she just stuck it away and tried to ignore it. For the next few months she paid just the minimum amount due. She was miserable being in debt. To pay off the $30,000 she made a strict budget and broke her debt down into more bite-sized chunks. She also took up extra work, got a roommate, and started cooking meals.
$50,000 paid off in 4 years
One 29 year-old financed his small business by putting a total of $50,000 on three credit cards. His business bottomed out during the Great Recession and he was left holding the bag for the $50,000, which he said, “made me sick to my stomach.” How was he able to pay off his debt? He got rid of his Internet service and both he and his wife got freelance jobs. They used a white board to track their progress. They also learned to live more frugally. For example, instead of getting expensive whole-house air conditioning, they bought a window unit. This cut their electric bill by almost 40%. Finally, the couple was able to use balance transfers to lower their credit card balances.
Age 25 and $28,000 in debt
What can you do if you’re just 25 and $28,000 in debt? One woman woke up one morning to learn she had almost maxed out her credit card ($100 left) and had only $100 in her bank account to last her for almost six weeks. Her answers were first to move back in with her parents for six months of rent-free living. She stopped going out with friends for drinks or meals and stopped all shopping trips, weekend getaways and vacations. This allowed her to pay off $10 000 in just six months. She stuck to her tough budget and was fortunate enough to get two large tax returns she was able to use to pay off the rest of her debt.
Can you imagine graduating with $101,000 in debt? One young man did just that. Following gradation with an MBA, he made 21 monthly loan payments of $1057 each and still had a balance in excess of $90,000. What did he do? He cut his spending and increased his earnings by taking on a second job. He took in a roommate, stopped contributing to his 401(k) and did the standard money-saving things like skipping meals out and was able to pay off his entire debt in a year.
How a US Marine eliminated $60,000 in debt
This young man spent the first years of his adult life doing minimum wage jobs and managed to run up $60,000 in debts. He joined the Marine Corps and seven months deployed in Iran taught him a lesson about the necessities of life. When he got home, he and is wife used the debt calculator Unburyme.com to create a plan for paying off the $60,000. They found stuff they could sell online, learned to cook more meals, got a family cell phone plan and found a number of other ways to cut their spending. They are now free of debt and planning to retire in seven years.
What do these five stories have in common?
What all these people did was develop a plan for dealing with their debts and then worked their plans. The lesson to be learned is that if you have a serious amount of debt, you, too, could develop a debt management plan and become debt free. The steps are relatively simple.
• Track your spending
• Develop a strict budget
• Get a debt calculator
• Make a plan
• Review your spending to see where you can make cuts
• Use extra money such as tax refunds to pay down your debt
• Find ways to increase your income (if necessary)
Do this and you might be surprised at how fast you become debt free.