When you're falling asleep isn't it always the thought of credit card debt that comes to mind? The best way to deal with that anxiety is with a plan. A plan to stop the bleeding money, set spending thresholds and eliminate that debt! Below I've outlined my best strategies to flex your money muscle and live in the black.
Step 1:
Figure out where you want to be. It is crucial to envision yourself debt-free on a particular date in the future. Daydream looking at your financial statements and knowing that you are master of your own house. You don't owe anyone anything. Bask in that feeling of complete freedom and then remember that joy when you're about to charge more crap you don't need. :)
Step 2:
Map out where you are. Take an evening, open a bottle of wine or drink of your choice and make a list of every debt you owe and the interest rate. Include overdraft, credit cards, department store cards, bank of Mom and Dad or Auntie Gertrude, student lines of credit, personal lines of credit, homeowner's lines of credit, auto loans, RRSP loans and mortgages. Make sure to include any "don't pay now" loans too. Just because you aren't spending money on it right now doesn't mean it isn't debt.
Step 3:
Which of your debt products have the highest interest rate? This can be emotional interest too. If Auntie Gertrude makes you feel like jumping out the window every time you're at a family event then prioritize that she needs to be paid off first. The killer interest rates come with department store cards and credit cards. Department store cards have up to 30 per cent interest and credit cards are around 20 per cent interest. If you buy a $1,000 sofa on a department store card and only make minimum payments you'll have paid $1,000 MORE in just over three years at 30 per cent compounding interest. You could have had two sofas if you paid cash. Crazy, right?
Step 4:
How you are going to bust that debt? Everything is on the table now. Remember how AMAZING you felt owing no one anything? First, holster the cards. Put them in the freezer or bury them in the living room fern. Next, figure out how much you need each month to pay all essential bills, eat and minimum payments on all of your cards. If you don't need it don't spend it. Deduct that from your monthly after tax salary. With the extra income throw it on your debt -- highest interest first. Make it a game. We all love games! Try to live on as little as possible for one month. Brown bag lunch, drink office coffee, eat at home, watch TV, play board games or have a "nookie" night with your love monkey instead of going out. Use your imagination and cheap out for only 30 days and make a huge dent in your debt. It'll feel incredible.
Step 5:
Make more money to throw on the debt. Put everything you don't want on eBay, Craigslist, take to a pawn broker or have a garage sale. Old comics, jewellery, coins, toys and collectibles can make you a tidy sum. Old furniture, cars, boats or trailers that you never use can get you a quick cash hit too. Ask for a raise or try to get extra cash doing something that you love to do anyway. Whatever you're awesome at -- try to sell it for some coin. Collect as much money as you can from selling your services or items that you don't need and put it right on that debt. Be sure to celebrate your success every time you see that balance drop. Hard work deserves a pat on the back. Make sure you know how much you owe at all times to keep your eye on the prize.
Step 6:
What can you live without after your cheapo month? Commit to an amount that you want to allocate to the debt and every pay transfer the money in chunks to pay down the most expensive debt first. Use cash for everyday variable spending and limit it by taking a tiny set amount out each week for the entire week. When it is gone it is gone. Calculate based on your payments when you'll be debt-free and mark your "liberation" day on a calendar. Write the date on your day timer or on the back of a card and carry it around in your wallet. It will motivate you every time you look at that date so post it everywhere. Tell your closest friends and family to crystallize how important the date is for you.
Step 7:
Dream how you're going to reward yourself for that hard work. When you're debt-free of all of your consumer debt (not including investment loans or a mortgage) you've turned the tables. The consumer shackles are off and you need to be treated well for your discipline and industriousness. Think of a "carrot" that will get you through your weak moments and think of how sweet that prize will be when you're there!
Bust that debt and feel like a champ!
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