Part of taking control of your finances is controlling your debt. This can seen daunting at first, especially if you have thousands of dollars worth, with it spread all over the place. But it is possible.
About five years ago, I was in some serious debt. I got a credit card without really understanding much about money and always assumed that the Bank of Mom and Dad would come in and save the day. Well, that didn’t happen, and I wound up with two maxed out credit cards, a student loan, and a personal loan to clear. On top of that, my now-husband had his own load of debt and no job to even make the minimum repayments.
We’re now at the point of having no debt except the student loan and one personal loan. How did we do it? We took control with these five simple steps.
Organize Your Debt
I took control of all the finances, since I was the only one earning at the time, and organized all the debt that we had. The credit cards went into one pile, the personal loan and student loan into another, and all the rest was put into another pile of relatively small payments, like last month’s utility bills.
They were then put into an order based on priority. The utility bills needed to be paid off first to avoid the electricity or water being cut off. Once they were up to date, I could stay on top of them each month. I even called them up to set up direct debits to make sure they were paid each month without fail.
Then, it was time to tackle the credit cards and loans. The loans were worked on first, since they each had set agreed amounts to be paid. A note was made for the amount that needed to be paid on each one, each month.
Now, it was time for the credit cards.
Sort Credit Cards by Amount
Organize your credit card debt by the smallest amount to the largest amount. After doing this, I could see which one had the least debt, so I knew it would be cleared sooner. This also gave me the chance to look at the one that had the most debt and the most interest to pay off.
Have a look at the minimum payments for each one, and make a note of them. They’ll be needed for later on in this process. It’s easier to make a note of the amounts clearly to streamline the process.
Work on One at a Time
Don’t work on all your debt at the same time. It’s just too overwhelming, and you’ll end up further in debt. Now, you have a choice: start with the smallest debt first or start with the biggest. I started with the smallest to clear that card and see a zero sooner. I liked the zero because it made me realize that it was possible and kept me motivated for the rest of the debt.
Clear the first card you decide, while keeping up with the minimum payments each month on the others. Once you clear that first one, you can then move onto the next lowest (or highest) and work on clearing that one. Don’t forget about your other financial commitments and the minimum payments on the other debts while clearing each card.
Your family budget will tell you just how much you have available to spend to work on clearing your debt. Anything is better than nothing!
Cut Up Your Credit Cards
As soon as I cleared the first credit card, I chopped it up and got rid of it. I copied that with each credit card I cleared and convinced my now-husband to do the same. I’d advise to do this if you feel tempted to spend money just because you know the cards are there.
However, I do have one credit card for in the event of an emergency. It’s not often that I need it now, though, because I also have emergency savings in place. But it’s there for when the car breaks down and I need to pay for something without having time to transfer savings. When I get home, the first thing I do is transfer the money from the savings account and straight onto the credit card to clear it.
Save Up for Items You Want
It’s time to get out of the mentality that you can spend money because it is there. Using credit cards just saddles you with debt. Control the cycle of debt by changing the way you think about money and when you buy things. I now only buy something that I want if I have the money available. The only thing that goes on my emergency credit card is an emergency payment.
If you want a new computer, spend a few months saving for it and buy it then. If you want a new pair of shoes, wait until the money is in your checking account so you don’t go into debt.
It’s also worth saving up for an emergency fund and for the future.
Taking control of your debt doesn’t have to be that hard. It takes a while, but it is possible. Take it one debt at a time, and congratulate yourself each time one reaches zero. While you’re clearing it, don’t forget to get out of the mentality of using your cards when you want something! That’s what got you in this position in the first place, and you are ready to move on.