Welcome to Day 2 of my financial planning mini-series. Again, I am not a financial advisor. I am just offering what has worked for me in hopes that it will help someone else achieve financial goals.
"The average American household with at least one credit card has nearly $15,950 in credit-card debt (in 2012), according to CreditCards.com"
Want to pay off your credit card debt? You must chart your debts first... Just like with yesterday's mini-series post on charting your income and outcome. That's why in my FREE Budget download there is a tab at the bottom of the spreadsheet that says "Debt." Document all of your credit cards and student loan debt on this page. You will need to know how much you still owe on each account and what your APR is for each account. What many sources have advised is to pay the minimum balance on all of your accounts, EXCEPT for the account with the lowest balance. Do you often pay more than the minimum on your accounts to feel like you are doing some good? Go ahead and pay more than the minimum, but on only one of your cards. The idea behind paying off your smallest account first is that you are creating an attainable goal for yourself. In a shorter amount of time, you will have a credit card balance of $0, if you pick one card to pay off at a time.
Look at the chart above. I made these figures up... but the point is to make your minimum payment on the Lowes and Visa card and attack the Victoria's Secret card. Let's say you have been affording to pay $20 extra on each of the cards every month. Take that extra $60 and put it towards the Victoria's Secret card in addition to the $40 minimum balance for a monthly payment of $100 a month. You will soon (in about a year) have a $0 VS balance. Then when you are done with the VS card, move on to the Lowes card. Instead of having three cards, now you have only two which means you have more money to put towards the next card. So if you have been affording $100 a month for VS and now you want to work on reducing your Lowes card, you can put that extra $100 towards the Lowes card in addition to the monthly $75 payment for a monthly payment of $175 a month. Then you do the same for your final card. You can do it! I will have one of my credit cards paid off in January and I can't wait :)
Don't think that because you have so much debt that you can't possibly save. You can and you must in order to stop a circle of debt. If you have no savings account, what do you reach for in an emergency? A credit card. Then, you accrue interest on that emergency and you end up continuing in the credit card's wicked circle of debt. You keep playing catch up, but never actually catch up. That is why I included a column for savings in my FREE Budget Download.
Financial advisors suggest you save 10% of what you bring home. If you make $1000 every 2 weeks, this means it is recommended you save $100 from every check which would be $200 a month. When I was able to save 10%, I did. When I was unable to save 10%, I still saved something. According to a book I downloaded for free (now $3.99), "How to be Rich: The Couple's Guide to a Rich Life Without Worrying About Money" by Chuck Rylant, you have to pay yourself first, even when you have debt.
For example, let's say you are expecting an income tax return this year. Let's estimate the return will be $2,000. Don't throw your whole income tax return at your credit card accounts. Save some of the money for yourself! What if you need a car repair? Have you budgeted for birthday gifts throughout the year? What about if you need to take time off from work? What about that much needed vacation? You will become worn out if you continuously throw your money aimlessly at your credit card debt. Use some of your money towards your credit card debts and save the rest so that you can STOP using your credit cards all together. Which brings me to another important concept...
STOP using your credit cards. Credit cards are great if you use them and pay them down every month- for the sake of credit, it's even nice to carry a small balance from month to month. But if you are in over your head with credit card debt, STOP using credit cards. This is where budgeting from yesterday's mini-series is important. Figure out a way to live without using your credit cards. I have read that if you are truly serious about not using your credit cards, put your credit cards in a plastic bag or in a plastic cup and fill it with water. Then put the cup or bag in the freezer. This way when you want to use your cards, you'll have to wait a while and it won't be convenient.
Finally, it is important to note for credit sake, keep your accounts open. Don't cancel your cards. Your average age of open credit is important to your credit score. This is 15% of your credit score according to my credit summary from Freecreditscore.com.
Here are some of the sources I have used along the way:
I have been using this service for over a year because it was important for me to track my credit score and become educated on what I could do to improve my score. It is $17.99 a month, which I added to my budget.
She and her family of 4 live on less than $28,000 a year. She offers tips on how she makes it all happen.
I signed up for Mike Robert's e-mails because it was important to make my credit score better to be able to buy a house.
Financial advisors suggest you save 10% of what you bring home. If you make $1000 every 2 weeks, this means it is recommended you save $100 from every check which would be $200 a month. When I was able to save 10%, I did. When I was unable to save 10%, I still saved something. According to a book I downloaded for free (now $3.99), "How to be Rich: The Couple's Guide to a Rich Life Without Worrying About Money" by Chuck Rylant, you have to pay yourself first, even when you have debt.
STOP using your credit cards. Credit cards are great if you use them and pay them down every month- for the sake of credit, it's even nice to carry a small balance from month to month. But if you are in over your head with credit card debt, STOP using credit cards. This is where budgeting from yesterday's mini-series is important. Figure out a way to live without using your credit cards. I have read that if you are truly serious about not using your credit cards, put your credit cards in a plastic bag or in a plastic cup and fill it with water. Then put the cup or bag in the freezer. This way when you want to use your cards, you'll have to wait a while and it won't be convenient.
Finally, it is important to note for credit sake, keep your accounts open. Don't cancel your cards. Your average age of open credit is important to your credit score. This is 15% of your credit score according to my credit summary from Freecreditscore.com.
Here are some of the sources I have used along the way:
I have been using this service for over a year because it was important for me to track my credit score and become educated on what I could do to improve my score. It is $17.99 a month, which I added to my budget.
She and her family of 4 live on less than $28,000 a year. She offers tips on how she makes it all happen.
I signed up for Mike Robert's e-mails because it was important to make my credit score better to be able to buy a house.
This book is free for Amazon Kindle. Lot's of good advice.
By the time I read this book, I already knew a lot of it, but if you want one book that you can hold in your hand, it's a great book.
Day 3 of the Financial Planning Mini-Series: Tracking your Every Day Expenses
Day 3 of the Financial Planning Mini-Series: Tracking your Every Day Expenses
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