We covered a few steps to take before diving into your debt in our previous blog post. Now it’s time to get into the nitty gritty of things. We hope all of you are ready.
Look at what you owe
Compile your most recent credit card statements – all of them. Before you can begin tackling your debt, you need to see how much you actually owe. I did this myself and found the process stressful – there it was, all of my debt, right in front of me. Stop and relax! Realize that you’re already moving in the right direction by deciding to tackle your debt. You already took the first step so pat yourself in the back. Baby steps right?
The rest is quite simple:
Hit the small balances
Grab all those bills that have a $1,000 balance (or less) and set those aside. Go through each and decide if you can pay them off immediately by sending large minimum payments or full payments without going broke. If you can’t pay them in full right away, divide the balance into a 2 month period (no more than 3-4 months). For the rest of your bills, send in the minimum payment only while you pay off those balances under $1,000. The point here is to give a fairly high minimum payment (ie. $300-500 a month, or more).
Extra tip: It may be good to look into automatic payments at this point so you don’t miss other credit card due dates. Set-up the payment so you just pay the minimum. The great thing about this is that you can give extra if more income becomes available. Remember, ILWU Credit Union offers automatic payments through online banking. Check it out next time you log in.
Make some smart moves
As soon as you finish paying off the small balances, move on to the bill with the highest interest rate. See if you can transfer the amount to another credit card with a lower interest rate. Hint: The ILWU Credit Union Visa Platinum card offers a 9.95% standard rate and has zero balance transfers fees. You can apply here.
Take on the financial challenge, and conquer
Now here’s the tricky and most difficult part but again, not impossible to do. Take the high minimum payment amount (the one you were applying to those cards with a $1,000 balance) and add that to the high interest balance PLUS the minimum payment amount. For example, if you sent $500 to your $1000 balance, apply that amount to the high interest card plus whatever the minimum payment is. So if the minimum payment is $250, you will send $750 total to this card. Yes, it’s a lot of money, but imagine the dent you will make on the balance.
For the rest of your cards, apply only the minimum payment. The key thing is to focus on one card at a time.
Once you’re done with the high interest card, move to the card with the second highest interest and apply the same methodology as above, each time adding the previous monthly payments you applied. If you’re next card has a minimum payment of $100, you will now send $750 plus $100 for a total of $850.
Do a happy dance
Congratulate yourself every time you pay off a credit and keep going! You will say good-bye to the bad debt in no time. Next, tackle student loans and/or your mortgage. Apply the same methodology we described above and repeat.
Save, save and save
Set-up a savings fund right away. Hint: Look into our Safe Harbor Account or a ILWUCU savings account. Try your best to save at least 6-12 months’ worth of income for a rainy day. If the amount seems too large to tackle, try a smaller amount like six months’ worth of living expenses. Instead of a savings account, this now becomes your emergency fund. Remember, financial planning now brings you peace of mind later.
Don’t make being debt free a resolution, make it a habit. Resolutions are easy to forget and break, habits are not. So take the challenge with me! I plan to use these step-by-step instructions to tackle my debt in 2012 – one card at a time and with a clear head. I’ve decided to do something about my financial security and success, and so should you.
Will you join me?