Consolidating Debt And Becoming Debt Free

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Have you ever seen this little clip below? Play it and see what you think. Yes, it is about working on the job on Monday but what he is saying makes you feel the same as when you are stuck and needing help with debt and can’t get out. Thinking……….what did I do with my life to get me into this credit hole? What did I buy that costs this much? How did this happen? That is how we felt, just like this clip.

Where do you turn when you need debt help? Who is there to talk to about help with debt? Which debt companies do you trust? There are so many questions and you may not have any family members or friends to turn to for debt help because you are ashamed with your bad debt you have accumilated and don’t want to tell anyone. I understand how you feel. I could go on and on about this topic because of this economy and how it is affecting each of us. There is so much information and advice to cover. First of all don’t feel like you are the only one deep in debt. There are many, actually tons, of other families having the same debt problems you are having. I’ll just touch on a few ideas here that worked for us. I’m sure you will see more on this topic in the future, on my site, so check back.

Debt elimination involves three steps:

  1. Stop acquiring new debt
  2. Establish an emergency fund
  3. Implement a debt snowball
  4. Stop Acquiring New Debt

This step can be accomplished right now! Don’t charge anything else immediately! The reason your debt is out of control is that you keep adding to it. Stop using credit! Don’t finance anything. Put your credit cards in the freezer hidden away or in a drawer you never go into. Personally, cutting up a credit card was something I could not do because I would think to myself what if there is an emergency? How do I pay for it? What if my husband can’t work? What if he is in the hospital and can’t work? Or lost his job? What if my son gets sick and I need to stay home with him and have no vacation pay or sick pay left? How do we survive? I get a big fat pimple just stressing over these questions – I am not kidding either. So putting the cards away where you don’t see them is best. You can even fill a container with water, put your credit cards in it and put it in the freezer to freeze it like a block of ice. That way you will think twice about using them because you need to un-freeze the ice to get to your credit cards and is it really worth it.

Think to yourself and keep saying this:

I don’t need credit cards for a safety net.

I don’t need credit cards for convenience.

I don’t need credit cards for cash-back bonuses or free sky miles or a free t-shirt.

I can live without those credit cards because my grandparents and parents never used credit cards. If you are middle aged, you can relate to this one.

You don’t need credit cards at all. If you’re in debt, credit cards are a trap. The credit card companies don’t want you to pay off your bills because they want to make money charging you interest. Also, sending you blank checks to use at a low interest rate – ignore them! They just keep trying to suck you into their plan. They only put you deeper into debt.

Later, when your debts are gone and your finances are under control, maybe then use a credit card but for emergency purposes only. My opinion, don’t ever use one again! It was too hard working our way out of debit to end up going back there! I don’t really want to eat hot dogs and Campbell’s pork and beans for dinner anymore or peanut butter sandwiches. You and your spouse can each keep a credit card in the back of your billfold for emergencies only. What is an emergency? Is it buying groceries? No. Is it paying the electric bill? No. Is it buying beer? No. I consider an emergency if my car breaks down and I need to get home and get it fixed in order to get to work.

Recurring payments – cancel them now! This means a gym membership, cancel it. Magazine subscription, do not renew it. Blockbuster monthly fee, cancel it. Even if these amounts are $15 a year or $25 a month, cancel them! I have suggestions where you can get your workout and magazines for little to nothing and your movies for free but I can touch on that at another time. Basically, don’t let any recurring charge hit your credit or debit card. Monitor all charges hitting the cards because there may be one you completely forgot about. I know I did.

Now, call each credit card company to ask for a better deal on your card, meaning a lower interest rate but there are other options they may give you. Don’t cancel your credit card, just explain to the person on the line that you are having a difficult time paying your bills and are looking for some help with your credit card. Almost always you will get some sort of help whether it be skipping a monthly minimum payment, lowering your minimum payment due, moving your due date or lowing your interest rate. That comes to another issue – have you always paid your credit card on time and at least the minimum payment? If so, you can use that reason to help you get a lower rate, lower monthly payment, etc. Don’t be afraid to ask – this does work! The credit card companies would rather work wtih you than not get any payment at all. I would be surprised if you did not get any help from your credit card company. If the customer service person on the phone won’t help you out, ask for a Supervisor. Don’t be afraid to ask!

Establish An Emergency Fund

Why save before paying off debt? That was my question but when you think about it, you understand why. Because if you don’t save first, you’re not going to be able to cope with unexpected expenses. Do not rely on your credit card – remember, tell yourself you do not need that new tv, upgraded cell phone – tell yourself no!

How much should you save for emergencies? I would say $1,000 to start. That may seem like a lot but if you can just put $25 in a savings account a week, that would be $100 per month. Time seems to fly and before you know it you will have $400 in an account. But the way I look at it is if the bank is charging you a fee to have a savings account, keep the money at home, hidden in an envelope. Most of the time there is a minimum amount to hit before the bank stops charging you a fee for a savings account. Chase bank where I go is $300 and if I keep that amount in the savings and not go below it, I will not have a fee for a savings account. So keep the money at home for a bit until you meet the minimum balance and then put the money in a savings account. Don’t pay any fees to the banks! But why not keep it at home till you get to $1,000? Because in the back of your mind you know the money is in your house, hidden of course, but you have immediate access to it. Keep it in the bank so it is not easily touched for that weekend dinner out, new video game, new shoes or new upgraded cell phone.

Remember the emergency fund is not for beer, shoes, video games, a new dress, earrings or perfume. It is to be used when your car dies, have a hospital emergency and such. Trust me, you will feel so much better just knowing there is money accumilating in a saving account for an emergency. I know it sounds odd, but having some savings put away makes you feel good that you accomplished it no matter how much money is in the account.

Implement A Debt Snowball

After you have stopped using the credit cards and live on cash only and have your emergency fund at $1,000, then attack your existing debt. The snowball effect means to list all of your credit cards on a large piece of paper listing from the lowest balance to the highest balance. Now, list the minimum payment in a column next to each. Tape this piece of paper up where you can see it often such as behind your bathroom door and you see it when you are in the bathroom. Or on the bedroom mirror, bathroom mirror, in your closet or inside the cupboard door where your pills/vitamins are. Just put it somewhere where you see it often! Pay the minimum payment on all but the lowest balance card, which in this example below is $685.23. You would pay the minimum on all but the American Express card. Pay as much as you can towards the American Express card even if it is $5 or $10 more than the minimim. Keep doing this each month until the American Express is paid off and then take the amount of $35 or whatever amount you have been paying on the American Express and apply it to the Bank of America card on top of the minimum payment due. In this case pay $120.00 on Bank of America – that is if your minimum was $85 on that card. If you need to sell something from your house such as an extra chair or recliner you do not really need, sell it on Craig’s List or at a garage sale. Take that money and apply to the smallest balance credit card. You can find lots of ideas to sell items and find items for free to sell on my site.

Card Name Balance Due Minimum Due

American Express $685.23 $35.00

Bank of America $982.33 $85.00

JC Penny $1,785.93 $100.00

Desert Schools CU $3,175.02 $125.00

Home Depot $4355.20 $135.00

Remember, don’t use your credit card for any reason. Always, do the 24 hour rule or 30 day rule. Ask yourself if you really need to buy this now? If I put it back and wait for 24 hours will I still want to buy it? Probably not. Here is a story about us and using the 24 hour rule. You and your spouse must both be on board to do this or it will not work. Stay tuned for more info.

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