Step1
The first step is probably the hardest. Compare your income to your monthly necessary expenditures. There are many ways of doing this, ranging from accumulating all your bills to going Spartan on your spending for a month. My preferred method is to pay everything necessary with either an automatic bank payment or debit. Example : All housing, credit and utility bills will be paid automatically by your bank. All transportation or grocery bills will be paid with debit. Everything else must be cash. At the end of the month, subtract the total amount withdrawn from the ATM from the total expenditure, and you'll have a rough estimate of how much you "need" to spend every month.
Step2
Now that you know what you "need" to spend, find out when you "need" to spend it. In our family, the mortgage and utilities come out with the first paycheck of the month. The other bills come out with the second. These payments are made the day the paycheck hits our account. Then we know how much we have left over for that pay period, and can decide what to do with it.
Step3
Even if the above steps won't work for your situation, they'll give you an idea of how to be mindful of what you spend. Once you have this mindfulness, you can see where you can cut a little here or there, or where you've been "hemorrhaging" cash. All those automatic payments? Bump them up to an even number. If the minimum payment on your credit card is $33, pay $50. If your student loan is $279, pay $300. You would be amazed at how much impact $21 can have on a loan. Use the credit card calculator (like the one at BankRate.com) to see just how much that extra few dollars every month will affect your credit balances.
Step4
Compare your expenditures to your savings. A good rule of thumb is to keep 3 months, but preferably 6 months, worth of your bills in an emergency savings account. If you have more than this, compare the return on your savings to what you're paying in interest. While it's comforting to know you're set for a year should something happen, you may be paying a lot more than that over the life of your balances.
Step5
Use your tax incentive check. Yes, yes, the government wants us to stimulate the economy. Instead of spending your $600 (or, in some cases if you have children, over $2,000) on fun things, considering throwing it all at your debt.
Step6
Bring in some extra income. This isn't as hard as it sounds. Write for eHow and put whatever cash you get from here towards a credit card. What are you passionate about? Websites, designs, crafts? Everyone has a marketable skill. If you spend a little time each day turning that skill into a bit of income, even if it's only $50 per month, you can pay off your debt faster while enjoying a passion or hobby.
How to Pay Down Credit Cards
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Comments
sdearing said
on 8/1/2008 Very good article! I would add a few things.
1. Pay yourself first. Put a regular amount in your savings every month. Even if it's just $10 a month to start. When you get used to that amount being taken out each month, bump it up to $15 or $20. It will add up fast.
1. If you are in a hole, stop digging! Cut up all your credit cards. If you feel you must have one for "true" emergencies, keep the one with the lowest interest rate and/or the lowest balance. Pay it off first.
2. In addition to rounding up, add a substantial payment amount to this one.
When you pay off the first one, start on the one with the next lowest balance. Add what you were paying on the fist one to what you are paying on this one. This will start a domino effect. When you pay off the 2nd one, add what you were paying on the 1st two to the payment of this one, etc. You will be amazed how fast your debts disappear.
LAURA7088 said
on 5/14/2008 Great article! It's easier to read than to put into action but it would be great to be out of debt. Thanks for the ideals.
LAURA7088 said
on 5/14/2008 Good article! Putting it into action will be harder than reading about it but it would be great to be out of debt. Thanks!
pamam said
on 5/13/2008 Also when you have multiple credit cards always pay the higher interest one of first, no matter how high the amount is, in the long run you will pay less on interest. Pay one of first while paying the minimum on the rest, and don't be late that just gives them the chance to raise the rate. Sometimes when the credit card company sees you are doing this they will lower the minimum to make it look like you can afford to buy more, don't buy more, just keep paying the same minimum and it will get paid down sooner than if you lower your minimum. If are strong enough you could lower your minimum, if they do, and tranfer the remainder to the card of highest rate and pay it off faster yet.
pamam said
on 5/13/2008 Also when you have multiple credit cards always pay the higher interest one of first, no matter how high the amount is, in the long run you will pay less on interest. Pay one of first while paying the minimum on the rest, and don't be late that just gives them the chance to raise the rate. Sometimes when the credit card company sees you are doing this they will lower the minimum to make it look like you can afford to buy more, don't buy more, just keep paying the same minimum and it will get paid down sooner than if you lower your minimum. If are strong enough you could lower your minimum, if they do, and tranfer the remainder to the card of highest rate and pay it off faster yet.