How To Pay Off Credit Card Debt: A Success Story
by Silicon Valley Blogger on 2009-04-26 78
I love success stories, and so when I heard that another personal finance blogger has finally squelched her debt load, I had to share her story here. She has announced that she’s eradicated her credit card debt and finally has a $0.00 balance on her card accounts. That’s awesome, especially if you realize what a feat it is, because she had a balance of close to $40,000 to start with.
It took her around 3 years to make the debt disappear by implementing many strategies. This shows that if you’re really serious about getting rid of your debt. making the pledge to deal with it aggressively does work and can be the fastest way out of your financial situation. Some days ago, we published the story of how another individual was able to avoid bankruptcy ; the cornerstone for this success is determination and commitment, in my opinion. Here are some debt elimination tips that I’ve found to be very effective throughout the years:
Pay Off Credit Card Debt: 8 Tips To Plan Your Debt Elimination Program
1. Know that you can do it yourself.
It’s important to know that even if you have accumulated a lot of debt, it’s still possible to succeed with eventually eliminating it once you take steps to actively manage it. The stories of many debt bloggers are a testament to how it can be done. It may help to use a free budgeting tool like Mint.com or Wesabe. There are tons of free web budgeting tools available these days that you can use.
If you’re more comfortable with desktop budgeting software, then there’s YNAB (You Need A Budget). which aims to get your debt and expenses under control. It’s actually much better rated than most other popular software applications in the market (check Amazon reviews); you can read more details about this product in my YNAB personal budget software review.
Tip: YNAB is a highly rated money management tool that has proven to be pretty effective for debt management because it’s built on a budgeting paradigm that encourages better saving habits. If software is not your thing, then try out a different, more manual approach such as the envelope budgeting system.
Now if you find that despite your efforts, your financial situation continues to weigh heavily on you and you find yourself overwhelmed, it would be a good idea to seek help and support elsewhere. There are a lot of resources out there that can help, such as Debtors Anonymous .
2. Set goals.
Making a promise to ourselves to deal with our debt is one thing, but we need to do something that will make the commitment concrete. Setting a date for when we expect to reach our goals will give us a roadmap against which to measure our progress. Goal setting is a great tool to ensure that we keep ourselves focused and headed in the right direction as we tackle our debt reduction program.
Tip: There’s an online tool called SavvyMoney Pro that can help you create a debt reduction plan. While it has a low monthly fee, the benefits you gain for creating a tailored DIY debt reduction program should outweigh the costs.
3. Create a debt elimination plan.
The quickest way out of debt is to stop incurring more of it while simultaneously paying off the loans you already have as aggressively as possible. While this may seem tough to do, you can use some strategies to help you out. Debt consolidation or refinancing may be solutions in some cases (but beware how this may affect your credit score), while a few people I know (including myself) have addressed their debt successfully by using balance transfer credit cards.
Transferring your debt from a high interest rate card to lower interest cards will speed up the debt reduction process, but it’s imperative that you weigh the costs of doing this. You’ll be paying less interest with a balance transfer, but applying for a new card has a short term effect on your credit score and can come with a balance transfer fee. You’ll also need to pay special attention to the rate changes after the promotional rates expire. In the past, I’ve been successful with eliminating debt by using such cards, but I had to make the commitment of paying off my debt during the 0% introductory rate period.
Tip: Balance transfer offers are few and far between these days, but some still exist. Shopping for the right type of credit card may help you cut your interest payments. Low interest credit cards may be more suitable if you carry a balance.
4. Prioritize paying off your debt as your primary financial goal.
A lot of people who’ve been able to banish their debt have made sure that they stick to their priorities. These people have managed to avoid temptations that entice them to part with their money. In my case, after I finally retired my debt, I vowed never to carry a credit card balance going forward. Now I pay off my balance in full each month.
Before I buy anything, I ensure that it’s something that I’ll be able to pay for by the end of the month, and if not, I simply avoid making the purchase. As for unexpected expenses, I keep an emergency fund in a high yield savings vehicle to avoid having to use my credit card for such emergencies.
Tip: I keep my emergency money in an online savings account that offers a relatively higher return.
5. Keep your eye on your track record.
When you embark on a debt elimination program, it’s a good idea to keep track of how your credit is doing. In fact, it’s wise to get a snapshot of your credit standing before, during and after you’ve worked on reducing your debt, in order to chart your financial progress. Tracking your credit score is one way to measure the success of your debt and credit management efforts.
Tip: Visit AnnualCreditReport.com to receive your free credit reports or take a look at products from Equifax. which give you access to your FICO score. You can also find out if you can get by with a non-standard non-FICO free credit score.
6. Celebrate your victories.
Just like with trying to lose weight (which I’m still trying to do…), being way too restrictive about dealing with debt can end up backfiring when we end up “rebelling” over our self-imposed restrictions. How many of us have experienced falling off the bandwagon on occasion because of tough — sometimes unrealistic — rules that we impose on ourselves? Give yourself a break once in a while by treating yourself to simpler rewards when you reach certain milestones in your plan or debt reduction schedule.
7. Increase your income.
I think that it’s not enough to cut back. It’s best to apply a two-pronged strategy for living below your means: spend less but also try to earn more. If you can find ways to increase income, you’ll have more ammunition to throw at your debt balance; there are many ways to earn extra income (start a side business. get a second job, learn how to invest well), which combined with a strong savings strategy, can accelerate your debt repayment.
8. Have accountability.
One of the most effective strategies that some people have employed is to make themselves accountable while trying to work on their debt. By sharing their stories with others through blogs or in forums, they are able to receive lots of encouragement and support, thereby giving themselves the psychological boost to handle their financial issues. There’s strength in numbers, and I believe that a blog or a similar platform helps build a supportive community that can cheer you on and provide you with advice, ideas and even guidance to keep you focused.
For those who aren’t interested in being accountable in this manner, you can still help yourself by simply keeping a journal or diary that will track your progress over time. By keeping tabs on your progress and jotting down notes and ideas about your financial activities, it’ll be easier for you to measure and assess your status. All this can only help you stay on track.
9. Pay more than the minimum.
The lesson here is this: put as much money as you can afford towards expensive debt or anything that charges a high interest rate. The cost of debt can be humongous. By keeping a tight rein on the use of your card, you won’t allow your debt to run away from you. It’s particularly important to avoid feeding your debt balance because as it grows, the harder it is to control and manage. So before you use your card, already set some parameters. If you can’t afford to pay the whole balance off, try your best to pay more than the minimum in order to bring down your principal as quickly as you can.
One Amazing Success Story
As for that personal finance blogger who wiped out her debt in 3 years? It’s one of many success stories I’ve found inspiring. Congratulations to Tricia! She’s blogged away a total debt of $37,614 all in all in a little over 3 years (38 months to be exact). Eliminating a huge debt load may seem overwhelming at first, but you can do it!
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