Six Steps to a Money Smart Start for 2014
The holidays are over now and for many people it’s time to face the reality that is credit card debt. The hard fact is that unless you have a 0% annual percentage rate (APR) or are paying your cards off in full each month, you’ll end up paying much more toward your credit cards than the purchases you made actually cost. The scrooge-o-meter is a great way to determine how much your purchases will truly cost you. But no matter what, what’s done is done. Now it’s time to take action and conquer your debt. Here are some steps to take to help you do so:
1. Stop using your credit cards and set up a budget
If you find yourself using credit cards for daily purchases like groceries or gas, then you definitely need to set up a budget right away. Try to be as accurate as you can and make cuts in spending wherever you can…while being realistic. Either way, stop using cards as soon as possible. The more you charge, the more work it will be to pay off your debt.
Want some help setting up a budget? Call LSS at 888.577.2227 to schedule a free and confidential financial counseling session or get started online right now!
2. Create a support network
If your comfortable doing so, let your friends and family know that you’re trying to cut costs and improve your financial stability. You don’t have to go into details by telling them how much credit card debt – or even that you have any debt. Just let them know that you’re trying to stick to a budget and build up savings. That way, you won’t feel pressured to give gifts or to go out for coffee or dinner. Perhaps you can have a game night in and cook dinner together to share and reduce costs. If you have support it will be a whole lot easier to achieve your goals.
3. Make higher than the minimum payments
If you look at your statement, creditors are required to show you how long it would take to pay off your debt with a minimum payment and a slightly higher payment – including the total amount you’d end up paying. Whenever possible, make payments that are higher than the minimum otherwise you could be paying off your credit card for 10, 15, 20, or more years.
4. Consider a Debt Management Plan
A DMP is a great way to pay off your debt…and relatively quickly. You would make one monthly payment to LSS and we would then pay your creditors monthly. The beauty of a Debt Management Plan is that with on-time payments your credit score will improve and your credit cards will be paid off IN 5 YEARS OR LESS. Also, typically there’s a lot of money saved because of the reduced time frame and sometimes even due to lower interest rates.
5. Build up savings
The only way to be prepared for unexpected expenses or income reductions is to build up savings. Find a balance between paying extra toward credit card debt and saving at the same time. Because if you paid off all your debt, but then your car broke down, how would you pay for it? Use your budget to determine how much you can set aside and then set up an automatic deposit into savings monthly or every pay period. If you get a tax refund or are expecting another type of monetary windfall, use part of it to pay off debt and part of it for savings. A good savings goal is to have 3-6 months’ worth of expenses.
6. Don’t repeat the vicious cycle
When the holidays (or birthdays or whatever) come up next year, it will be easy to fall back into old habits. This may be the hardest part, but it’s the most crucial to avoid getting into more debt. Use your support network and be creative with gifts instead of using your credit cards. Read "10 Tips to Avoid Financial Chaos this Holiday Season" for ideas.
Paying off debt is kind of like trying to lose weight:
- It’s not always easy or fun;
- You have to put in the time and work; and
- Results aren’t immediate, but
- You’re going to feel SO much better when the weight of debt has been lifted!
Call LSS Financial Counseling at 888.577.2227 today to get back on the road to financial stability. Our Financial Counselors will empower you to take control of your debt and achieve your financial goals. Don’t wait – take action today!
Author Elaina Johannessen is a Financial Counseling Supervisor with LSS.