I am not a financial advisor, but I will give you the best advice that I can, pulling from what I have learned in the past! With the New Year here, this is a great time to start this new resolution! I think everyone wants to be debt free. Even those that have lots of debt can be free, with a little discipline and a few tricks I have learned!
First
Credit cards are the devil!
This seems to be one of the hardest things for people to wrap their heads around! I was lucky that I was told this young in my life and told often! However not everybody is aware of this! I was just very surprised when I married into debt.
The problem with credit is that it's so very easy to use. When you need or want anything, you have a magic card that pays for it until you get your pay check. That is if you ever pay it back, by then there is always interest payments and other things you need to buy. It is a never ending cycle or so you think! This is just a quick example: you owe $3000 at 10 % interest rate (which is a really low rate for a credit card). You pay $100 towards it every month and $30 goes to interest! Basically you are throwing away more than $1000 in 3 years time! Credit Cards are designed to get you further in debt and make money for the credit company, not to help you!
Second
Interest rates make a huge difference!
Credit Card rates are usually higher than any other rates out there. My husband and I got rid of all his credit card debt by getting a new loan on our vehicles at 6.5% and using the extra money on the loan to pay off the credit cards. We now could easily pay off the credit cards that were at a ghastly 30% or so (this was just a few years ago when the credit card companies kept raising their rates for no reason). Most of the payments we made were going to interest only and by doing this, the opposite started to happen. It was fantastic! It really makes a huge difference what your rates are. Shop around to get the best possible deal for yourself. Consolidating your debt may help you as well. See what is best for you!
Third
Cut up the cards
That is right, cut them up! Even if you haven't already paid them off, get rid of them so you aren't tempted to use them! If you aren't adding to the balance then eventually you will pay them off! This may cause some discomfort at first, you will have to budget a little tighter. Once they are paid off, the money that usually goes to paying the credit cards will be in your pocket again. Be creative with new income ideas and on how to save money. Eventually you will be debt free!
Fourth
Pay Principle Only
Most loans you take out will allow you to make additional payments on principle only. I always ask before I take out a loan if they have any fees for paying the loan off early or paying principle only just in case, I haven't had a problem with it yet though. This takes discipline, but if you can pay any extra at any given time ask for the money to go as principle only! It will not count for the next month, but in the long run you will pay less interest during the whole term of the loan. This means shorter time for the loan and less paid out of pocket for interest.
Fifth
The Roll Effect
This is a fantastic way to pay off loans! I just hope I don't lose you while I explain this! At the bottom of this section, there are two different websites that may help you if I lose you. Alright! If you can find a way to pay a little more toward your bills each month, this is a great way to get out of all your debt! I am going to use an example by using just $100 a month more! Lets say these are your loans below!
1. car payment APR 6.5% loan size $13,500 payment $264.14
2. visa APR 17% loan size $ 7,500 payment $186.39
3. Store Shop credit card 20% APR loan size $3500 $92.73
If these were your loans you usually pay $543.26 a month, by adding $100 more you will be paying $643.26 until your loans are all paid off. This will not change for this example, but if it is too hard financially, just do what you can when you can. We are going to start by paying off the smallest payments first. In this case it would be the shop card. The extra $100 will be added to this loan payment every month, as principle only, until this is paid off. When we go to pay off the next loan we will have the $100 plus the shop card $92.73 to add to the visa card. Now we are adding $192.73 to the visa cards principle every month. Once this is paid off we have the $100 the $92.73 and the $186.39 from the visa card to put toward the car payment. We will be adding $379.12 to the principle of the car payment. This will pay it off shortly. When all of the payments are paid off that $643.26 that was paid every month will now be in your pocket to save, and to start buying things in cash with!
Just like a snow ball, you can pack a little snow together (the $100) and send it down the hill to pay off a loan. As each loan gets paid off it makes the snow ball bigger and gives you more money to put toward the next loan. After everything is paid off you will have a huge snowball, or a lot of cash, so you don't have to use loans anymore!
This really works and in case I am not making sense to you check this out!http://www.daveramsey.com/article/get-out-of-debt-with-the-debt-snowball-plan/ He uses a different approach but I am sure it works well to!
http://lds.org/ensign/2011/07/getting-out-of-debt-for-good?lang=eng This has a great visual with the example lists provided. Read under "A Simple, Effective Method"
Sixth
Don't Buy New
I hope my husband learned his lesson here, I know I did! It was shiny and it looked oh so cool with all the added parts, chrome and all. When I looked out the window of our apartment, I thought "there is a 700 dollar a month view. Too bad you cost even more for gas and insurance. Why didn't we just buy a house if we were going to spend that kind of money every month" as we would buckle our seat belt and drive off, away from our rented apartment. What I didn't understand is how we still owed 17k on a truck that was bought 5 years ago! I thought when you bought a car it was over a 5year period loan. I guess there are longer loans as well, when you get a loan from a dealer! As great as it was to have a super top of the line truck, with all the must haves and wants, it had its problems too. Not only the terrible payment we had to pay with an ugly dealer interest rate, but the truck had its problems. The lights constantly went out, the battery wouldn't hold a charge, the heater went out and boy was that expensive to fix. Other things that went wrong, the underside already started to rust, the DVD player hummed, recalls... etc... etc... When we finally paid it down enough that we could sale it, we couldn't count how much our losses were! We bought a little car for $500 from a friend, and put a couple hundred in fixing little things here and there. With a title in hand and savings of $900/month, we wore grins when we drove our little beater around! At the pump we were getting 30+ mpg. It may not be a shiny fancy truck, with chrome or a DVD player, but my little clunker got us everywhere we needed to go as we got out of debt. Get this... when we sold that little car after a year of pocketing $900/month... only putting $500 in parts the entire year... and paying $500 for it... we made $1500 on it! It sold 15 minutes after putting it in the classifieds for $2500!
Seventh
How to Stay Out of Debt
Keep yourself in check! Make goals to save money to buy something you want or need. Stay frugal with your money. Don't just buy things you want, because you have money in your pocket. Make long term goals to pay off your house, start on retirement, pay for your child/grandchild's college, and anything else worthwhile you might think of. You may enjoy finding fun ways to save money by couponing, shopping for the best prices, and through yard sales (both purging your treasures and finding someone else's). Check this blog often to get new ideas and to stay motivated!
Refinance/ Consolidate
This is what I was referring to when talking about interest rates! When interest rates are as low as they are now, this could be a great option. This is tricky though, you have to weigh this one out to see if it is a good option or not. Consolidting on a credit card or similar loan may effect your credit in a poor way. The best way is how we did it, where we had a lower rate then a credit card and by using our vehicles it helped our credit. We got hit pretty hard when the economy crashed. For us, it wasn't whether we would make the loan too long or if we would end up paying too much in interest by refinancing. We honestly could no longer pay all the bills from the debt my husband had previous to the marriage. We refinanced the new truck I talked about previously, since he had used a dealership and got a terrible interest rate on it. The credit union was very helpful letting us consolidate the credit card loans into our vehicles. They let us get a little extra added on the loan, for the truck, to help pay off the credit cards. We paid part cash for the the little affordable car (that I got a wonderful deal on) and got a small loan on it, to help my credit score. We were then able to get a much larger loan on it and paid most of those nasty credit cards off. Since we had even more credit card debt my husband had recurred, we needed an extra loan to pay this off. My husband had a motorcycle that was almost paid off, so we got a new loan on it as well. It was so nice to have all of our loans centered in one place. Whenever we had extra money we would put it toward the cars, until the cost on this was low enough to sell them. My husband had an old truck he drove after we sold his new fancy truck. After we sold my little car we bought another, from a friend, with cash. My husband gave it a little tune up and it drove like a champ! Parts were cheap because we could get them from the junk yard! Once the cars were sold, we paid off the motorcycle quickly! In less than 3 years we have gotten out of $50,000 of debt! We are finally ready to look at homes now! You can do this too! It is so freeing to not have these bands of debt around our ankles!
Ninth
Set a Budget
This has been the hardest thing for us! My husband's work is not steady because he works for himself. This is the best way we found to make sure bills are paid and to stay out of debt: First, bills must be paid for the month with all the money we have. Second, we budget about $400 for food for the month. Third, bills need to be paid a month in advance, in case of a hard month. Fourth, extra payment on the loans principles only. Fifth, spending money ($100 or so very little). Sixth, any extra in savings. This may not be the best for you. However you decide to budget make sure you are getting out of debt and not adding to it. Knowing where your money is going every month can help you to find ways to tighten your budget in different categories.
This has been the hardest thing for us! My husband's work is not steady because he works for himself. This is the best way we found to make sure bills are paid and to stay out of debt: First, bills must be paid for the month with all the money we have. Second, we budget about $400 for food for the month. Third, bills need to be paid a month in advance, in case of a hard month. Fourth, extra payment on the loans principles only. Fifth, spending money ($100 or so very little). Sixth, any extra in savings. This may not be the best for you. However you decide to budget make sure you are getting out of debt and not adding to it. Knowing where your money is going every month can help you to find ways to tighten your budget in different categories.
Tenth
Add Job to Pay Debt
This may be selling crafts or baked goods, babysitting, yard sales, or cleaning houses. Find an extra way to make a little money while you are getting out of debt. I found ways such as selling extra things around the house on a free classified site (pictures make a difference), I became quite good at this. We "pimped" out our Pomeranian stud and sold our female's puppies. Anything that could help us through this tough time!
Eleventh
Get Priorities Straight/Keeping Things in Perspective
Getting out of debt isn't easy, but you have to remember that you cannot let debt consume you and hurt your relationship. You and your partner need to work through the debt together, making sacrifices but focusing on what's important as well - your family and your relationship. Get a babysitter and make time to do something special with your spouse so you can remember why you fell in love. Set time aside to do group activities as a family to involve the kids as well. Don't let your debt get the best of you. Splurge on needs and pass on wants, when possible. By keeping your debt, family, and relationships your biggest priorities you can move into a less stressful part of your life and gain a stepping stone in your relationships. This has been a huge help in our marriage to get through this rough patch financially and it has brought us much closer.
Twelfth
This was a huge sacrifice in our lives, but very worth while! I parted from my cute pink scooter and my little car that I loved. My husband made lots of sacrifices too. He sold his nice new truck, his snowmobile trailer, and recently 2 fishing boats (not in the best shape but none the less it was a sacrifice). You can do this by just not buying either! If there is one toy my husband loves it is a boat. If there is one toy that can really suck your money down, it is a boat. It is hard not to have a boat to him, but once we can buy a nice boat that doesn't need constant fixing in cash we might do so, in the future. Thirteen
When it comes to working your way out of debt, it's all about organization -- believe it or not getting your documents organized can save you money!
Fourteen
Fourteen
Eat in and save money, it is healthier and a great family activity. I promise eating at the table and discussing your day will bring your whole family closer! Even if it is just you and your significant other. If you aren't the best cook I can relate. When I first married, I thought a home cooked meal consisted of pouring dry noodles in boiling water and warming sauce from a can. With about 3 years experience, I now can my homemade sauce, make noodles from scratch, make home made french bread with garlic dipping sauce, and a toss salad for an every day meal. A couple months ago we went to one of my favorite Italian restaurants for my birthday. It has been a long time since we have gone out so it was a big surprise when we hated our meals! My husband told me on the way home "I would rather stay home and eat your stuffed shells, honey". This was one of the best compliments I have ever received. Wow, I am not a so so cook anymore! It is so great to be able to cook better meals at a better price at home! Anyone can do it! My favorite site is allrecipes.com I pick what looks yummy and a 4 star or more. If you don't know what you are doing there are lots of tutorials on youtube.com so try that too!
Just make sure your splurges are not huge and won't compromise all the hard work you are doing to get out of debt!
