60 Second Guide
to Getting out of Debt
Imagine being free of debt -- no more sleepless
nights over mounting credit card balances, no more ball-and-chain of debt
feeding your anxieties, and no chance of threats from dreaded collection
agencies. You can do it! Here's the scoop -- in one minute flat.
0:60 Resolve to spend less than you make
Make it a habit as fundamental as stopping for red
lights. Realize once and for all that if you can't pay for it today -- you
can't afford it.
0:55 Distinguish between Bad Debt and OK Debt
OK Debt has an interest rate well under 10% --
preferably with some tax advantages to boot. In the best case, what you bought
with borrowed funds will appreciate in value. Home mortgages and student loans
are examples of OK Debt. Automobile loans are on the border: They often satisfy
the low-rate piece, but automobiles almost never appreciate in value. Bad Debt
is everything else -- from your titanium credit card to the 35% loan from
Larry's Kwik Kash.
0:50 Pick a winner
Out of all your cards, pick the one or two major
credit cards that feature the lowest annual interest rate. Resolve to use those
cards for emergencies only. As for all the other plastic pals in your wallet,
remove temptation by taking them out of your wallet. Throw them behind a
major appliance, freeze them in a bowl of water, or decoupage them to a
shoe box. Do whatever it takes not to use them.
0:41 Gather the latest bills from all Bad Debt accounts
Line these up on the kitchen table. Find the minimum
monthly payment for each account and then add these up to get an overall
monthly minimum. Pledge to pay this overall minimum PLUS a hefty additional chunk every month -- enough to make a solid dent in
the outstanding balance of at least one account.
If you can't pull this off, you'll have to make a
drastic move to increase your income or lower your expenses. It's harsh, we
know, but it's also an inescapable fact.
0:34 Pick the highest interest rate account and: Attack!
Next, order the latest bills according to annual
interest rate charged. Apply the "hefty additional chunk" (beyond the
minimum) to the highest rate account(s). Repeat this process monthly until the
last Bad Debt account is paid in full.
0:26 Ask for a lower interest rate
Grab a bill from any account charging you more than
14% interest. Dial the toll-free number on the bill and ask to have your rate
reduced -- say, to 11%. Tell them that you'd really like to stay with them out
of customer loyalty (embellish according to your acting skills), but that you
have received offers for much-lower-rate cards.
Expect to be made very uncomfortable, but stand firm
and remember that, to them, you are both a customer and a profit center. You
also stand to save a bundle. The more calls you make, the more persuasive
you'll become.
0:18 Be prudent
Be aggressive in paying down Bad Debt, but don't get
so ambitious that you risk missing minimum payments on your mortgage,
automobile, or any other secured credit account. (Secured means that if you miss
enough payments, the bank can show up and take away your stuff.)
0:12 Commiserate with others
On our Consumer
Credit / Credit Cards discussion
board, you'll find plenty of emotional support and great ideas. Help others
celebrate their debt-free "happy dance."
0:05 Dance, Fool!
You're done when the Bad Debt is 100% exorcised and
you can make remaining OK Debt payments with ease, leaving plenty of budget
room for savings.
Got another minute?
Our Credit Center offers
many more workable ways to help you get
out of debt.
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