Photo credit: flickr Karen_O’D
We live in a right now world. We want everything immediately from our food to our necessities and our wants. Gone are the days of cooking for a few hours in the kitchen or saving money and waiting to make a purchase. Unfortunately, once you get used to the convenience of using credit as well as the ability to use credit to make you feel like you have more money than you do. Breaking the credit habit can be difficult–until you reach rock bottom.
The term rock bottom is often used when describing addicts, but the urge to spend more than you earn can be an addiction. Giving up the convenience of credit requires you to make serious lifestyle changes. You may find that like an alcoholic or drug addict, you can’t go back to the convenience of credit again.
If you have reached rock bottom and are committed to getting, and staying, out of debt, here are some steps you may want to take:
1. Consolidate your loans. Paying back high interest credit card debt can take a long time because the interest eats up most of your payment and very little is put on principal. If you owe $20,000, you may be facing payments of $800 a month. Instead, manage your finances with a loan. The right loan can have a much lower interest rate, which can allow you to gain traction by putting more on principal.
2. Cut up your credit cards. One of the risks of credit consolidation is that you pay off the credit cards with the loan only to run the credit cards back up again. Then you have doubled the debt. Instead, cut them up and close the accounts. Yes, your credit score may take a hit, but if you are committed to living a debt free lifestyle, the credit score should be the least of your worries. Staying out of bankruptcy should be your first concern.
3. Get a debit card. If you miss the convenience of credit, get a debit card or a prepaid credit card. However, you may want to wait to do this until you have experienced paying with cash and living within your means for several months.
4. Change your lifestyle. You likely got into debt because you were living beyond your means. Realistically evaluate your situation. Can you afford your current apartment or home? If not, now might be the time to move or refinance. Are you deeply underwater in your car payment? Sell it, and buy one you can afford. You probably can’t go out with friends every Friday night, but you could have them over for game night, which can be free.
5. Let others know what you are doing. Share with those close to you that you are working on turning your financial life around and getting out of debt. Hopefully, they will encourage you. In addition, they may not ask you to buy popcorn for your little nephew’s Boy Scout troop fundraiser or to go out to eat at an expensive restaurant.
An addict’s recovery is dependent on a complete lifestyle and mindset change. The same is true for someone who has abused credit for too long and is deeply in debt.
What other steps would you recommend someone working their way out of debt take?
{ 1 comment… read it below or add one }
All good advice. I would especially focus on your fourth point. I find that when I sit down to create a budget with people, they are often surprised how much they spend on certain segments, especially entertainment and dining. Creating a detailed budget that allows you to pay down debts and save is usually not as hard as you think. Unless your budget is already tight, there are lots of areas to pare back.