As the Christmas shopping season approaches, more and more I hear people discussing how overwhelmed they feel with budgeting and their debt loans. The temptation to overspend on Christmas gifts is very real to many people, and they max out credit cards planning to find a way to deal with it in January.
It’s not too late to make a plan, budget for the festive season and try not to charge if at all possible. You have to be strong to resist all those promotions to “SAVE AN EXTRA %% on today’s purchase if you open an account with us!” unless you truly can afford to pay the balance in full each and every month.
My tips are applicable at any time of the year to help you whenever it is that you decide to tackle your debt. I know that it takes the courage to start dealing with debts, but eliminating debt is truly freeing!
I’d love for anyone who has been successful to leave additional tips in the comment section below. If you have a question and need help, leave that in the comments too, my readers are kind, and would love to offer words of encouragement to you.
Top 10 Tips to start getting out of debt
1. STOP spending your money
This sounds like the obvious thing to do, but it’s often the hardest one! The principle is simple, if you don’t have the cash to pay for it, you can’t afford it!
2. Make a list of ALL of your incoming money and debts
You need to know where your money is coming from and going to. This is going to be quite a challenging task, because you’ll need to be honest with yourself. Take your time, sit down with a nice cup of coffee or tea and write everything down on a piece of paper. You don’t need to make the spread sheet complicated, just write on one side what you earn and the other side what money you owe.
3. Create a workable budget AND STICK TO IT
Once you know how much money is coming in, you can allocate where it’s going. Again, this is a time to be totally honest with your current spending. What might be O.K to spend money on normally (like going out, entertainment, various memberships, eating out etc.) might need to be re-adjusted for a period of time to help you to pay off your debt.
To help you to stick to your budget, I’ve written step by step guide here.
4. Pay yourself first
You need to set up a savings account, piggy bank, or some secure place to store some savings for emergencies. Even if you can only save $20 or £20 per month, you know emergencies happen, and you need a contingency fund to pay for them. When just starting out, I’d say set a goal to save 10% of your total monthly income, but that isn’t always feasible in reality. So, save as much of that as you can. This may mean cutting out extras temporarily, but you can add those back in once you get your finances under control.
To help you to start your emergency fund, check out this practical blog post.
5. Try to lower your interest rates
This isn’t always possible since you are at the mercy of your lenders to approve this. Each person’s situation is different, but it’s worth a call to see if this is possible.
6. Look for ways to increase your income
Perhaps you can get a second job, or sell some things or see whether you can earn any other money from your home. If you can get some extra cash coming in, you can pay off your debt a lot sooner.
7. Determine your % of debt on each account
If you can get each account under 80% of its limit, you can increase your credit score. For example, if the limit is $1,000 or £1000, try to get the balance below $800, £800.
8. first Pay off the smallest amount you owe
Once each card is below 80%, if your score is in bad shape, try to get them under 60%. If the score is ok and you just want the debt gone, pay off the smallest balance to give you a boost of encouragement to keep going.
9. next Pay off the highest interest rate balance
Snowball the amount you were paying towards the smallest balance, add it to the payment you’ve been making on the highest interest rate account, and you will pay off this account faster. This way your debt will get smaller, simply because you are going to be charged less each month as you pay off the card or borrowings with the highest rates. Continue this process with each additional account or borrowing.
10. Pay ON TIME
Even if you can only pay the minimum balance, and are applying extra income sources to accounts, it is imperative you pay the minimum payment on time each month. You can always send extra payments, but meeting the due date is so important. Once you’ve made on time payments on each of your accounts for 6 months, you are in a better position to call and ask for rates to be lowered. Not to mention, on many accounts, if you are late with any company, they can raise your rate to their maximum rate or charge you a penalty for late payment.
It’s always important to read your terms and conditions with all bank accounts. Knowledge is power. Know when your payments are due, how you can make them, and under what conditions your rates can be raised or lowered. If you are making on-time payments and get your percentage owed balances under control, you should notice improvements in your credit score.
It’s also very important to make sure you are monitoring your credit report regularly. I recommend using the free annual service, and spacing your requests out. Order 1 every 4 months so you can see the improvements over time.
It is likely, that you didn’t get into debt trouble overnight, so it’s unreasonable to expect things to improve straightaway. Most people that I have known personally, usually see massive improvements in about 12 months of paying on time with balances under that 80% mark, but everyone’s situation is different. Even just starting the journey out of your debt by being honest with yourself, writing everything down and starting to repay your debt, is a huge and very brave step.