Debt can seem like an infinite spiral. This, in many ways, is by design. After all, credit card debt is crafted specifically to keep you owing for as long as possible. Thanks to their “minimum payments,” you need only funnel a relatively small amount of money to the card issuer each month to remain in good standing. However, doing so barely reduces your principal balance, even as it encourages interest to accrue in a logarithmic fashion. That’s why paying more than the minimum on credit cards each month is among the most important things to do when you’re in debt.
Here are some others.
Audit Your Finances
Sometimes you have more money than you think you do; you’re just apportioning it inefficiently. Make a list of all your expenses each month — all of them —food, rent/mortgage, utilities, entertainment, what have you. Review your bank statement to take note of where your money goes. Compare that total to your income. If it’s less, you’re in good shape. If it’s more, you have some reconfiguring to do. Either way, though, you’ll know exactly where you are and can apply that information to the next step.
Develop a Spending Plan
OK, so yes — it’s basically a budget, but we all love spending more than budgeting, right? Your spending plan builds upon the financial audit you performed to help you channel your resources in a more favorable fashion. Andrew Schrage, CEO of Money Crashers, tells CNN, “A spending plan is like a roadmap for how you’ll use your money.” In other words, you’ll still get things. Meanwhile, the word “budget” sounds like you’re going to have to make do by going without — where’s the fun in that?
Your spending plan should include a small amount of cash you set aside with which to have a good time, in addition to money for covering all of your bills, savings, investments, and your emergency fund.
Going through your audit, look for things you can eliminate like that wine club subscription and streaming services for which you signed up but never used. Said simply, look for places your money goes that do nothing to enhance or advance your goal of getting out of debt, and repurpose it toward debt eradication.
Seek Professional Help
If, after conducting your audit, the water looks too deep for you to tread in, you might need to get a “swimming” coach. There are several different ways to approach this. Credit counseling is a good start, say Andrew Housser and Brad Stroh, founders and co-CEOs of Freedom Debt Relief.
According to Housser, “Credit counseling can often help you make changes to your spending habits you’ll find too difficult to do on your own.” Stroh agrees and adds, “Counselors can also advise you in terms of other strategies you can apply such as debt management, debt consolidation and debt settlement.”
It might sound like common sense, but many a person has learned it the hard way: common sense isn’t common. There’s always something out there to tempt you and credit cards make it all too easy to succumb. However, doing so only serves to lower you deeper into the abyss.
Yes, you’ll get a moment of elation when you acquire that new bauble. However, that euphoria will morph into depression when you eventually realize it made your debt problem worse. Personal finance guru Dave Ramsey advises people to avoid credit cards altogether. He says, “It is possible to live a full and happy life without credit cards, and anyone can do it with some determination and grit.”
And that’s the bottom line. The single most important thing to do when you have debt is make up your mind you no longer want to live that way. Once you’ve done so, you can take the above steps to lay your debt to rest and strike out on the road to financial freedom.