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The key to getting and staying out of debt is being able to save enough money to cover any unforeseen expenses you come across. If you can put the following plan into practice, then you should be able to get out of debt. Getting out of debt takes a long time, there is no quick fix. However the quicker you get started the quicker you can be out of debt. A no debt budget Let's look at a way for you to get out of debt while breaking the current routine. By using a ING checking account as your spend money account. You can get a Debit/MasterCard. This card will work as a regular debit card as long as your balance is above zero, but turns into a credit card once you are below zero. There is no fee for going below zero, so this is a great tool for budgeting. Of course the idea is to stay above zero, but if you should fall below zero, there is no penalty; this is much better than an overdraft fee. This should become the only card that you carry with you. You need to stop using all other credit cards as soon as possible. This card is a good way to wean your self off of the other cards. When you apply online for your ING debit card, try to set your credit limit to handle emergency expenses such as a car repair. I would suggest at least half of your monthly salary as a credit limit. If you have no credit or bad credit ING will only give you a $25 limit. You may be able to get it raised by giving them a call. What I would like for you to do is figure out all your weekly expenses such as; eating out, gas money, kids allowances, groceries, and anything you spend money for weekly (the spreadsheet on this website will help you with that.) If you can afford to, even add a little extra to this amount. Now when you get your paycheck, put this amount into your ING spending account ether by Direct Deposit or by ING automatic transfers. Now you need to keep your spending under control. So I want you to set a budget for eating out, and also for any other miscellaneous things such as shopping for clothing or your daily coffee. Go to an ATM machine and use the debit card to withdraw enough cash for one week of miscellaneous spend money. For all other planned purchases, use the debit card, such as gas money, and groceries. By using cash for your miscellaneous spend items you will be more conscious of how much money you are spending. If you spend too much you will know that you have to wait until the following week before you can spend more money. This is a good way to put on the brakes when you spend too much money. Another trick I like to use is to take a portion of your cash allowance, and fold it up and separate it from the rest of your cash. That way when you spend all of your cash, you will know that you only have what is left in your stash for the rest of the week. Understand that it is more important for you to save some money than it is to pay off your debt. However, you must also at the same time not acquire any new debt. If you don't start saving, you will never be out of debt. Your goal should be to save a full months salary in savings, but at minimum you should at least have a half months salary in savings while you are working to pay down your debt, once your reach that goal, then you can apply anything above that too your debt so you can pay it off as fast as possible. I know from experience that it is very difficult to get there. However, as you are doing this, you should in the long run pull yourself out of debt. If you should have an emergency expense, use this card to pay for it. Then take money from your savings and pay it back. If you don't have enough to pay it back you will need to cut back on your miscellaneous spending until you can stay above zero in your account. Remember that this account will have ether weekly or biweekly deposits made to it depending on how you get paid. This means even if you use the credit on this card, the monthly interest will be less than that of a standard credit card. Anytime you have to use your savings money, then you need to first apply your extra cash flow to restoring your one months salary in savings. Once your reach your goal apply all extra cash flow to your debt. Once your debt is paid off, anything above one month's salary in savings should be invested to make higher interest. Consolidating Your Debt I'm going to try to keep this simple. If you are making payments on more than one debt payment, then you need to think about consolidating your debt. This is something you need to constantly keep an eye on. Making debt payments to multiple sources is a huge drain to your income that will only put you further into debt. It is a trap that there is no escape from. If your debt is to the point where you can not save, or close to that point then you should consolidate your debt to one payment. If you are past the point of being able to consolidate, then you should consider getting information on a debt settlement plan. If you decide to consolidate then you will need to change your current spending habits or a couple of years down the road you will be in a worse situation. If you can follow the plan above, and stick to your budget, then you will be able to get out of debt. When consolidating your debt, you need to include everything; car payments, credit cards, loans and any other debt payments. If you own a house, you may want to consider refinancing your house if the debt is really high. If not, you may need to consider a home equity loan or a personal loan. If you just have a small amount of credit card debt on one or two cards, then read my chapter on credit card debt. One thing to keep in mind is that you want to get a loan that will lower your monthly payment, but also take the shortest loan term you can afford to take. If you stretch things out too far you could easily wined up in a worse situation in the future. The idea here is to wipe out the debt as fast as possible, but also raise your monthly income so you will be able to save some money for emergencies. If you don't learn to save money, it is only a matter of time before you will be in bankruptcy. You need to have money set aside for unforeseen expenses. Credit cards are the worst invention ever made. You need to get to a point where you will never use a credit card again. They are very convenient, but a debit card will serve the same purpose if you learn to take advantage of them. |
Getting and Staying Out of Debt |