My own debt elimination tips and thoughts on how to reduce debt. I’ve learned from my mistakes so I hope you do as I say, not as I did.
In the mid- to late-’90’s, I made accumulating credit card debt something of a hobby. It wasn’t exactly a conscious decision, but every time I handed over that piece of plastic with my name smartly engraved upon it, I was further destroying my financial future.
To make a very long story short, by the end of 1998 I had nearly $25,000 in debt and not a darn thing to show for it. I knew I needed to do something about the debt but, as a natural-born procrastinator, I adopted an if-I-can’t-see-it-it-can’t-see-me mentality and dropped the unopened bills into the garbage for a period of a couple of years.
Yeah. Not such an effective strategy!
My creditors called and called, and I literally began to develop ulcers at the ripe old age of 23, but I still didn’t do anything for quite a while. I don’t know if I got sick of the stress or if I just grew up, but I finally buckled down and, in 2000, got a second job in a last ditch effort to get my life back in order.
Now that I’ve got a few years distance between me and those old mistakes, I can offer a few tips on how to, and how not to go about eliminating debt.
My Debt Elimination Tips: Do’s and Don’ts On How To Reduce Debt
DON’T: Keep spending the way you have in the past.
Clearly, the same old same old is not going to work here. Your spending habits are likely what got you into debt in the first place. Changes must occur if you are serious about getting your finances back on track. Sure, those weekday morning lattes from Dunkin’ Donuts may feel like a necessity, but what’s worse? A few days of caffeine detox, or drinking away $700 or more that could be put toward your debt each year? Look at all of the little luxuries in this light and you may quickly find your priorities shifting. I’m not saying that you need to deprive yourself of everything that makes you happy but, rather, that you should try to find things that make you happy that are less expensive or, even better, free.
DO: Build a lean budget and stick to it.
Don’t let the “b” word scare you. Budgets are actually pretty easy to put together and to maintain. All it takes is a little upfront organization and a few minutes every week for updates. Don’t know where to start? Here are a few tools to consider:
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Check out YNAB (or You Need A Budget)
, which is a highly rated money management and budgeting software product that ranges in price from around $25 to $50 (depending on the version you pick up) and runs on most computer platforms (you can get a 10% discount by using the coupon code “digerati” for a limited time). You can read our review on YNAB (You Need A Budget) personal budget software for more details. A standalone product like this or Quicken should provide you with iron-clad security since they don’t run on the internet, an advantage they have over free online money management sites.
- To do your budgeting for free, check out Mint and Wesabe online personal finance tools. Wesabe provides free online communities dedicated to those who are attempting financial makeovers, and they’ve got great forums for advice, commiseration, and excellent discussion of money management tips and tools. The most pressing concern users have over online budgeting tools is the question of data security. Still, the companies behind these sites assure us that our information remains anonymous (to outsiders) and generally secure.
DON’T: Look for an easy way out.
Bankruptcy is an extreme option and shouldn’t be a consideration unless you are under extreme circumstances. I also don’t recommend trying to grow your money through the lottery or gambling. There’s a good chance that you will need to put some effort into getting out of debt, but that’s really ok. It’ll put hair on your chest.
DO: Have an emergency fund.
Even if it’s just $500, an emergency fund is crucial to the process of debt elimination. Many perfectly good budgets have fallen apart due to unexpected vehicle repairs, veterinary expenses, bail, etc. And remember that an emergency is an EMERGENCY. A great sweater on sale at J. Crew is not an emergency, no matter how you try to justify it. Here are some ways to build an emergency fund.
DON’T: Procrastinate.
I hope you can learn from my mistake: putting off debt elimination will do nothing but make life stressful and ruin your credit. Credit already ruined? Ouch. But the longer you wait to rectify the situation, the longer your credit will remain bad. The sooner you pay off those accounts, the sooner they will age off of your report, and the sooner you can move on with your life.
DO: Strategize.
I screwed up and paid things in the order of the collection phone calls that came, which meant that I ultimately paid more and for longer than was really necessary. The better strategy is to pay the minimum on every account, then funnel any extra money toward the account with the highest interest rate until it is paid off. See if you can take discretionary income and extra savings you’ve got each month to add to the minimum payments of your highest interest rate debt accounts. This strategy will ensure that you pay the least amount possible in interest.
DO: Find ways to increase your income while cutting down costs at the same time.
Check out these articles to help you find the money to pare down your debt:
Increase Your Income
- Want Extra Income? Try Odd Jobs
- Ways To Increase Your Income
- Increase Your Salary Without Increasing Your Work
Save Money and Cut Costs
- Deal Sites and Online Tools To Help You Save Money
- Best Coupon Sites For Online Shoppers
- Great Places To Earn and Save Money On Used Items
- Coupon Tips and Tricks That Can Cut Your Grocery Bill By 80%
Other Debt Reduction Strategies
What are you waiting for?
Contributing Writer: Emiley Thacker
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I think the one tip you mentioned “Don’t: Look for an easy way out” is really important. A lot of people try to do it, and they find themselves in deeper holes. Because people get desperate.
Budgets are the key to this one…you need to know what is going out and what is coming in before you can tackle the debt pay down piece.
Great tips,
Matt
I liked the dos regarding budgets and strategy.
They are helpful tips for reducing the debt
Thank you. Some good tips that everyone can use today.
How about not eating out and learning how to cook at home (according to ‘04 data individuals in the US between the ages of 25-54 spend an average of $2833.00 each year on eating out):
http://www.scordo.com/blog/2008/12/why-you-should-not-eat-out-and.html
Vince from Scordo.com
I’ll add another one, when you make your plan stick to it. So many people start off great then fall back into bad habits.
Finding an additional source of income is huge… but it is also the most difficult. It is tough to concentrate on ever aspect, if you can do well in a few you can see major differences. Right on w/ everything, especially the lean budget, emphasis on the word LEAN!
Cut on expenses, use less, car pool, buy what you need, these are the only ways out of the mess that we are in.
Just read about this post on Frugal Dad - some great advice that I couldn’t agree more with. I’ve only recently come to the same “what the heck am I doing?” realisation that you had years ago, so I’ve got a long way to go. But we’ll get there
What a great list. The thing I would add is Do involve your family (unless of course you’re single). Making debt reduction a team effort really helps!
Great summation! It really brings all the different facets of debt reduction into play. Sure, there’s lots more than can be said, but sometimes, the simpler, less detailed comments can have the best results, especially for those just starting out. Kudos!
To get out of debt you also need motivation and discipline and definetely a system. Some people claim they can eliminate their debt without paying for services or software, they say they can get the information for free. But the fact is that you have to be knowledgeable about what information found in the internet is correct and which one is not since you can get into deeper trouble if you follow the wrong information..
Very helpful articles! Thanks.
Fantastic organization. The flow was easy and the contrast between the pros and cons kept it entertaining, yet informative!
A comment was made about paying the highest interest rate card first. That’s great for people who don’t need extra encouragement to stick with the plan. A better option for those needing an extra push is to pay off cards in order of balances, smallest to largest, regardless of interest rates. As you pay off cards, continually roll the balances into the next card on the list. As you pay each card off you’ll feel like you are making progress conquering your debt and you’ll work harder on the next one. Keep the ball rolling. The $$ loss due to interest rate differences is minor and you’ll feel like you are accomplishing something and you’ll keep going. Remember, don’t add to the cards, just subtract! It worked for us!
This is a great simple list of Do’s and Don’ts on eliminating your debt. Setting up a lean budget is the easy part but I think the most challenging part of getting rid of debt is sticking by the regulated lifestyle you set for yourself. While it is important to change your spending habits and live frugally, one should not opt for an immediate change in lifestyle. The key is make a gradual transition in order to keep up with the change.
The long trial out of debt is not quick nor it’s going to be easy. The situation you’ll have found yourself in will have been years in the making and the solution will take a similar length of time. Be it months or years, it can be an awfully long time before you see the light at the end of the tunnel.