How to Manage Your Finances and Credit Card Debt

I want to help people try to better manage their finances and debt.

Difficulty: Challenging

Instructions

Things You'll Need:

• spreadsheet application like Excel
• perseverance
• patience
• a lot of self-discipline
• a list of all your monthly expenses

1. Cut up all credit cards but one. Give the one to a trusted spouse, friend or family member that will help hold you accountable. I do not recommend actually cancelling cards and closing accounts at this point as this will hurt your debt to credit rating.

2. Start by gathering all credit card bills for the month.

3. Sort credit card bills by putting the bill with the lowest balance at the top of the stack, then the next lowest and so forth.

4. Fill in the minimum payment field, the rate field and the balance field on your spreadsheet with lowest balance card first and so forth. You will fill in the recommended payment on these later.

5. Next, fill in budget amounts for every other category that you spend from each month. Take your best guess on these categories based on historical payments. Add or deduct from this list as it applies to your situation. NOTICE that savings is included in the other category list. Yes, you also need to plan on paying yourself if you are not already. Even if it’s $10 a pay period. Make sure you budget for every foreseeable expense for the month.

6. When you finish entering your budgeted expenses, does the balance field (income less expenses) show a positive number? If you're in the negative, this means you have an unbalanced budget and you are not living within your means. You must work to eliminate expenses until your budget is in balance. This could be an eye-opener. It should help you to realize where your money is going. Some areas to save on might be groceries by using coupons or buying the "off" brand or reevaluating areas such as car insurance, life insurance etc. I will discuss some other options in this area in another post.

7. Now enter the amount that you are currently paying for each credit card into the current amount field. (We’re going to look at tweaking this number so what you enter is temporary.) Where are you now? Are you still positive or negative now? Can you cut more expenses in other areas? Make a list of areas that you plan on cutting back on and then just do it. You must discipline yourself here and make a commitment to live within your means. You may have to live on beans and rice for a while. But you must live within your means.

8. 

   Now that you have created a positive cash flow on paper, take the balance amount and apply as much of it to the lowest balance credit card as you can. So maybe instead of paying $15.00 or so you could increase it to $50.00 or $75.00. Replace the current amount of that lowest balance card with the payment you can swing. Put this amount in your recommended payment field also.

9. With any left over funds pay as much as you can on the credit card with the highest interest rate. Make the adjustment to the current and recommended payment fields.

10. Apply a debt snowball concept. As you pay off a card, take the payment you had on that card and apply it to the current payment on the card with the highest interest rate. Keep going like this until debt is gone.

Tips & Warnings

• Most sources recommend concentrating on your credit card balance with the highest interest rate or highest balance. What I recommend initially is this: If you have a credit card with a fairly low balance on it, concentrate on paying off that one first. This way, you will feel like you are accomplishing something.
• You did not get yourself in debt overnight, therefore it is not reasonable to assume you will get out of it quickly. It can take years. But with some perseverance and discipline you can do this!

Resources

• When Will You be Debt Free

[kaseysviewblog]

on 8/27/2008 Good tips.