Fin Tip #4 : Consumer Debt Pay Off Strategies

 

 

So at the top of everyone’s financial goals list for 2018 is no doubt paying off debt and rightfully so. I just read an article that based on a recent study, credit card debt has hit the trillion dollar mark in this country. That is 12 zeros! The only explanation I have for this crazy mess is that with a seemingly stabilizing economy after the Great Recession  more relaxed spending ensued, albeit with borrowed money. However,  the cost of basic necessities ( I see you food!) are climbing while wages remain stagnant.  When I found myself in almost $50,000 in debt ten years ago in 2008 when everything crashed and I became jobless, I knew something had to change. I targeted my credit card debt which carried balances totaling a little bit over $15,000 across 8 cards.  I took a few steps to get out of it….

What worked

  1. Research! I stumbled upon Dave Ramsey and Suze Orman and read their books “The Total Money Makeover “and “Young, Fabulous and Broke” respectively and took some pretty good nuggets from both. Dave made a good point in his book and said if you were CEO of “YOU Inc” would you fire you ? I had to laugh because I admitted I was a terrible steward of my finances. I printed out some of his debt payoff worksheets and took it from there.  A word of caution, when it comes to financial “experts”, avoid becoming a disciple . You and your family are the only ones that really knows where you stand with your finances so every piece of advice that comes from a prominent finance guru may not work for your situation. Take what you need and leave the rest.
  2. Writing all of my debts down. I used Dave Ramsey’s printable spreadsheets, there are so many out there now or  you can even make your own. I wrote down my debts smallest to largest and attacked the little one first. That gave me a serious boost to attack the rest slowly but surely to eventually paying them all off. I wrote down who provided the debt service  i.e. Bank of America, Discover etc , the minimum amounts and the balance. It was nice to see I was applying so much extra money on the minimums it accelerated my pay off. I did jump around a bit and paid off the higher interest rate cards which saved me money down the road.
  3.  Open a savings account specifically for the debt.  I do this for my student loans now but you can open an account where you funnel about $50 every two weeks. When you feel it is at a certain good balance ,you can take a chunk out of it and apply to your credit cards debt. You can even name the account , like “Destroy Bank of America or Destroy Discover” for extra motivation.

What didn’t work

  1. Signing up for a debt management service. So out of desperation, I signed up for with a “debt solutions” company recommended by a friend to try and find a way out of the mess I created. They charged me $50 a month to negotiate lower interests on all my cards. It was also a mandatory part of the program to close ALL of my accounts which torpedoed my credit score to a 479! It was horrible. The fact that I was in debt and these people still charged me was unbelievable. I ended up canceling the service and basically paid the cards of myself  (at the very least the minimums) while slowly building my credit. Avoid these companies at all costs! They won’t tell you anything for do anything for you that you can’t figure out on your own.
  2.  Taking on a second job without a plan. At the time, I was working internally for a job placement agency and was only making about $35,000 annually. I got the bright idea to take a second job at the mall at one of my favorite stores to help get my finances in order. The mall is what got me into trouble in the first place mind you lol. I ended up throwing little at my debt but of course took advantage of my 40% employee discount! My wardrobe was tight but so were my finances. So the moral of the story and obvious lesson is to not taking a job where you know you will be tempted to spend. I would have made much more progress had I taken a job at Radio Shack :).

I learned not to dwell on my bad money mistakes. I’ve learned much more from my money management failures than my successes and I’m grateful to have had those lessons pretty early  on so I could avoid those pitfalls in the future. I encourage you to accept your money mistakes and move on! Don’t wallow and beat yourself up over it. When you know better, you do better.

Are there any ways to paying off debt that you can share with me? There are a ton more that I will share in later posts!

 

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