The following is a guest post.
We live in an instant gratification world. We want everything, from convenience foods to the latest gadgets, immediately. Gone are the days of cooking for a few hours in the kitchen or saving money and waiting to make a purchase. Unfortunately, instant gratification can be very difficult on your finances. The accessibility of credit cards makes you feel like you have more money than you really do. It’s just too easy to buy anything we want right now with the swipe of a card. 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 as well. Giving up the convenience of credit requires you to make serious lifestyle changes. It’s not easy, but here are 5 steps to help you get started.
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. If you just pay the minimum monthly payment, it could take years to pay off your credit cards. The high interest also makes it easy for the debt to get out of control. Once the credit card debt starts building momentum, it’s very likely that it will keep increasing every month. If you owe $20,000, you may be facing payments of $800 a month. One alternative is to get debt consolidation loans. You need to make sure that the loans have a much lower interest rate than your current debt. This will allow you to gain traction by paying down more of the 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 your debt. Instead, cut them up and close the accounts. Yes, your credit score may take a hit initially, 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. You can always get another credit card, if necessary, when the debts are gone.
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 or potluck dinners, which are much more affordable. There are many resources on the internet to guide you to a more frugal lifestyle.
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 and avoid asking you to spend money. This will make it easier for you to avoid your nephew’s Boy Scout troop fundraiser or eating out at expensive restaurants.
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 to someone working their way out of debt?