Conquer Debt and Reclaim Your Life

We’re all familiar with debt. Few of us can buy a house or a car without help from the bank. But sometimes the bills pile up on us. If your debts seem to run your life, keep in mind that there are ways to fight back. Here are a couple of practical approaches to help you live a debt-free life. All you need is the willpower to start today.

Figure Out What You Owe

Gather every bill that has a balance on it, then pull out the ones where you’re being charged interest you can’t deduct on your taxes. Credit cards and auto loans will be the biggest culprits for most people. If you’ve missed payments on any of these, bring those current first. Then line your bills up in order of interest rates (not by the dollar amount you owe). The banks or stores that are charging you the highest interest are the ones you should clean up first.

You might be stretched so thin financially that you can’t pay these off right away. Time for Plan B: Budget more than the minimums. Review your expenses and determine the maximum amount you can put toward repaying your debts each month. Keeping your goal in mind will help motivate you to find the extra money you need to pay more than the minimum amounts due. Put these additional amounts toward the card with the highest rate until it is paid off, then move on to the card that’s next on your list. Try to avoid new charges on your target card and continue to pay the minimum amounts due on your other cards.

Every dollar you can scrape together to add to the minimum amount due is a huge help. Consider a credit card balance of $4,000 with an interest rate of 15%. Let’s say the minimum amount due is 4%, or $160. Even if you never charge another purchase on that card, if you made only the minimum payment every month it would take you 10 years and 10 months to retire this debt. But if you add just $25 to your monthly payment, you could erase this debt in two years and four months.

Now Figure Out What You Spend

We live in a society that encourages us to shop. Our willpower is often overwhelmed by outside influences. In addition to the lure of credit cards, shopping is easier than ever with online browsing and one-click purchasing.

What can you do? One suggestion I can offer is to make it harder to spend your money. You’ll spend less if you have to reach into your wallet for cash rather than slide a credit card through a scanner. A more realistic strategy in our cashless society is to switch from credit to debit cards. Since the debit card is linked to your checking account, this is a way for you to pay cash without actually carrying cash. It also means you’ll always know what’s in your checking account, because you won’t want to overdraw it.

You can link your debit card to a financial tracking program such as Quicken, Mint, or Adaptu. Use one of these programs to track your spending for a month. By the end of that time you’ll be able to identify the things you can live without and create a budget that covers your basic expenses, provides for at least a little fun, and directs a set amount toward paying off your debt.

I’m always ready to offer my counsel on your financial situation. Working together, we can put you on the road to a debt-free life and start you on a saving and investing plan for a brighter future.