For most Americans, being in debt is a way of life. From their homes to their cars to their credit cards, these days, debt is a part of everyday life. In fact, many people are so deeply in debt, that they often go further in debt with products like payday loans just to keep up with the interest on their original loans. As you can imagine, the pitfalls of payday loans is a vicious cycle. Is there a way to break the debt habit and pay off your credit cards, the primary source of America’s debt? Read on to learn how you can pay off what you currently owe without incurring any new debt.
Restrict the Use of Your Credit Cards
While you’ve obviously got to continue making your mortgage and your car payments, you don’t have to use your credit cards. The first step in reducing your credit card debt is to stop charging except for emergencies such as medical expenses or car repairs. In a nutshell, if you can’t pay cash for an item, you don’t need it. If you think you’ll have trouble resisting the call of a new pair of shoes, leave all but your debit card at home. Since funds come directly out of your checking account when you use your debit card, you’re more likely to feel the cash leaving your account. If you do find yourself with a negative checking account, there are some things you should do right away to limit the damage.
Establishing a Budget is a Great Way to Pay off Credit Cards
Most people don’t have a budget in place and adhering to one is crucial for both paying down debt and saving. While they may know how much they earn every month, few people know how much they spend. Of course, they know the cost for big-ticket items such as their mortgage, rent, and car payments, but most people are a little fuzzy when it comes to where the rest of their money goes. Creating a zero-based budget is an excellent way to not only get a handle on your expenses, but to dedicate funds for repayment of debt such as credit cards. Start by recording all your income for a month. Don’t forget to include child support, alimony, investment dividends, and pensions. Then create another list showing all your expenses. Remember to include debt repayment and savings as expenses. When you’re done you should have nothing left. This isn’t to say that you haven’t allocated funds for groceries, dry cleaning, gas, clothes, food, and haircuts, it just means that every expense is accounted for. If you find you have money left over, then you should increase the amount you devote toward repayment of credit cards and savings. If, after you’ve compiled these two lists, you don’t have enough money to pay your expenses, then you need to revisit your budget and reduce your spending so you can save more.
Pay Off Credit Cards by Reigning in Your Spending
There are a lot of ways to reduce your expenses without taking the fun out of life. At first, it may seem like an impossible task, but it can be done. Here are some areas in which to consider cutting back:
- Review your auto, home, life, and health insurance policies to see if you’re duplicating coverage and if you can find cheaper premiums
- Eliminate premium channels from your cable package. Instead, rent movies from RedBox for just $1 a night
- Disconnect your home phone. Most people these days just use their cell phones
- Downgrade your cell phone package reducing minutes and data or consider switching to a prepaid plan
- Get cheaper Internet service. The slowest speed is plenty fast enough to download any files or stream movies
- Shop at a no-frills grocery store and buy store and generic brands whenever possible
- Buy meat, poultry and fish in bulk and divide into meal-sized portions and freeze for future use; one of several ways to save up to $5,000 a year
- Cancel any newspaper or magazine subscriptions. Instead, get your news and entertainment online
- Drop your gym membership and walk, run or buy a workout video you can do at home
- Sell gently used clothing at chains like Buffalo Exchange or place them with a local consignment store
- Have a garage sale. Get your neighbors to have one on the same date and you’ll divide the work of advertising it, and probably garner a bigger crowd
- Your local library isn’t just for kids. Take advantage of it for best-sellers, CDs and DVDs all free
- Order from the value menu at fast food restaurants
- Eat out at chain restaurants which offer specials such as 2 entrees and an appetizer for $20
- Skip cocktails and soft drinks when you eat out. Stick with water and don’t order desert
- Trade services with neighbors and friends such as haircuts, home and car repairs, babysitting and dog walking
- Brew your own coffee and bring it with you to work in a thermos avoiding expensive coffee houses
- Buy store brand bottled water in the 24-pack and bring a bottle with you wherever you go for approximately 15 cents
- Pack your lunch and bring it with you to work. You’ll not only save money, you’ll save calories and fat by not eating fast food
- Install a programmable thermostat and avoid heating and cooling your home while you’re away at work
- Pick up freelance or part-time work from community websites like Craigslist.com
Even doing just a portion of these cost-cutting measures will result in substantial savings. Remember to keep track of what you save and designate these funds toward paying down your credit card debt.
Credit Cards are the First Thing You Should Pay Off
Without question, credit cards are your most expensive debt which is why it should be the first you pay off. Organize your credit card bills with the highest interest rates on top to the lowest on the bottom. Start by making the biggest payments you can on the highest rate cards while making at least the minimum payments on the lower rate cards. Remember, even just $10 extra a month will help reduce your debt faster than you can imagine. Once the first card is paid off, move on to the next most expensive card and so on. Another option is to transfer your high-interest credit card balances to a card with a lower interest rate or, if possible, no interest at all. There are quite a few no-interest cards available for those who qualify. Do an online search and don’t be afraid to get a representative on the phone and ask all your questions. Find out whether there are any transfer fees involved and exactly how long the no or low interest rate will last.
You might also want to look into refinancing your home. While there are, of course, costs involved in this process, the savings may be well worth it. While you’re at it, re-shop your auto financing to see if you can get a better interest rate from a different bank.
Pay Off Credit Cards and Live Practically Debt-Free
Once you’ve paid off your debt, the best thing you can do is live a debt-free lifestyle. That means avoiding expensive payday loans and credit cards at all costs. You might even find ways to save by making some simple phone calls.