Having a credit card or taking a loan is a commitment that requires a lot of self-control. It is easy to spend borrowed money. It is easy to pay only the minimum payment due. It’s easy to say “yes” to something you don’t have to worry about until the future. But when the future arrives and you’re still in the hole, what can you do?
Getting out of debt requires a coherent and realistic plan that might start with a little prioritizing. Credit.com recommends making a detailed list of all of your debts, a list that includes the total balance, interest rates, the minimum monthly payment, and the three- or five-year pay-off amount that is likely available on your statement. That way, you can compare each debt and evaluate which one is the most pressing based on the interest rate or amount owed.
Consumer expert and blogger Clark Howard advises that in addition to organizing the debt you owe, you should commit to not accruing new debt if possible. Focus on the debt you currently owe rather than looking for opportunities to get new things that you will have to finance. When you organize your debt, list the smallest first and the largest last. Once you tackle the first, you will gain confidence that you can also tackle what remains, and you will see a clearer picture of when you can be debt-free.
One way to avoid having to open new credit lines is to commit to spending cash instead of thinking of your money in terms of credit. Time magazine’s Family Finance writer Kara Brandeisky explains that people who pay in cash are more likely to “feel the pain associated with spending real money,” citing a study that showed consumers are less likely to make luxury impulse buys with credit cards.
Another key part of making a financial plan is to be sure to pay more than the minimum balance each time. Paying the minimum only requires you pay a very small portion of your debt—and then leaves the rest of it in your account to accrue interest. One way to avoid paying a lot of interest is to utilize available balance transfers—most of which offer a promotional period with low or zero percent interest.
Make a plan with deadlines and set amounts that you are to pay off, and be willing to adjust that plan when necessary. Track your behavior using a chart or taking notes about whether you really did what you said you were going to do, and be honest with yourself. You may want to create a plan, then schedule time to reassess it every month in the beginning, slowing down to every quarter as you progress. That way, you’ll be sure you’re on the right track and you’ll have the added reward of seeing your debt totals go down.
Clark Howard also advised debtors to use any “excess” cash against their debt. Excess or unexpected cash may come from a higher tax return than expected, a rebate, sales of items on eBay, or even selling your diamonds with us. If you have that cash, prevent the debt you already owe from adding up by putting it toward it. You’ll never miss it!
Liberating yourself from debt is an achievable goal if you are willing to change the way you think about money and the way you live your life. If you make a pact with yourself that you are going to pay off your debt, then uphold that pact, you can knock the debt train right off the tracks and get things moving in a more positive direction. Eighteen percent of people surveyed by CreditCards.com said they expect to never pay off their debts. But that pessimistic attitude doesn’t have to be yours if you plan properly and act according to plan. So chop up that plastic and get out of the black!