Easy access to credit cards and student loans can contribute to a lifestyle that starts out with debt and only gets worse as time goes on and spending pressures increase. This can be quite an uphill battle. While some refuse to use credit cards altogether or actually pay off their balances each and every month, debt can be a serious problem if you rack it up. If you’ve done this, how can you dig yourself out?
Calculate Exactly What You Owe
Figure out exactly whom you owe and how much. Make a list of all your debts and corresponding minimum monthly payments, due dates and interest rates. Rank your debts from highest interest rate to lowest. Determine which debt, if any, is worth keeping. It may make sense to keep mortgages and loans for college. Why? Because the interest on most mortgages is tax deductible and many college loans have very reasonable interest rates.
Set Up a Budget and Start Eliminating Your Debt
A budget will help you determine how much extra cash you can devote to paying down debt. It will also help you identify frivolous expenses that you can cut back on, which in turn leads to more cash at your disposal to further reduce your debt burden.
Lower Your Borrowing Costs
If you have taken the plunge to pull yourself out of debt, why not get the most for your debt-reduction buck? We all receive credit card applications in the mail. Take a look at what rates these firms are offering or compare credit card rates online. Then get your current credit card company to match whatever attractive rate you discover. Or, transfer your current higher interest-rate balance to a company offering a lower rate. However, make sure you find out how long this lower rate will last and what the regular ongoing rate will be. Also, be on the lookout for balance transfer fees.
Cash Is King
If you can stick to cash when making purchases, do so. If you would rather not carry cash, use a debit card. Unless you have developed a disciplined approach to pay off the balance, do whatever you can to avoid using a credit card. Find one card with a low rate for situations that may require one, such as Internet purchases, but be sure to pay it off every month.
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