Debt Accumulation: A Slippery Slope
A typical college grad can rack up to ten thousand dollars in less than three years, with the collective help of plastic pals Visa, Mastercard, Amex and a variety of store cards. And that may not include car loans.
You might wonder how one gets in that deep so fast. It could start with the first birthday bash as a working professional. Most college students have major budgetary constraints; thus a landmark birthday like turning 21 could pass without much fanfare. Accordingly, once regular paychecks are guaranteed, a fitting coming of age celebration would seem appropriate. Whether fitting should include renting space in Manhattan’s upper west side for 4 hours on a Saturday night is a question for another time. But once that step is taken, it could all go downhill from there. New clothes, shoes, gadgets, expensive vacations – you name it. The credit card offers keep rolling in, and signing on the dotted line becomes second nature. Soon enough, the concept of living within one’s means becomes alien and foreign.
Upon finally waking up to how desperate the situation is (no children, house or other credible excuse for such spending), it is not unusual to be overwhelmed by a feeling of helplessness. Getting out of debt may sound like a swell idea, but with no clue how to go about doing so, some contemplate suicide.
Face Debt Like You Would a Mountain - With Discipline, Focus & Determination
Perhaps you know someone like that. Maybe it’s you. This story is in no way unique, but it could end differently than most. Many people get out of debt; you can too. There are lots of books and websites loaded with information on how to manage debt, finances and so on. While checking those out for some useful tips is recommended, keeping things simple is always a solid option. With a little focus, the barrage of information can be narrowed down to 4 basic steps:
1) Eliminate easy access to your credit cards.
That means that you either have to spend cash, or use a debit card. Either way, you’ll only be spending what you have. This will give you a deeper appreciation for the value of money. Besides, your debt balance is a much better target if it’s not moving. Leaving credit cards at home may work just fine, but don’t be afraid to take more drastic measures like leaving them with someone you trust for safe keeping, or sticking them way back in the freezer so that you have to break through a chunk of ice to get at them.
2) Close those accounts.
Once you get serious about ridding yourself of debt, close all accounts that don’t have any balances, beginning with store cards. As you pay off other balances, close the accounts. This may result in some unexpected benefits. Each time you make a call to close an account, you’re likely to be bombarded with all sorts of incentives to keep it open. These could range from lower interest rates to increased credit. You may even get an offer to transfer your car loan balance, going from say a rate of 5.9% to 1.9%! This will come in handy for the next phase of the plan.
3) Consolidate, Consolidate, Consolidate.
Rack up enough debt, and you’ll be working day in day out just to pay off interest. You could easily pay hundreds of dollars spread across various cards every month, yet hardly make a dent in the principal. Once you consolidate, your payments will go much further. If you don’t have enough available credit on one card, focus on paying off cards with lower balances while making only the minimum payment on others. As you pay off balances, you will have more flexibility.
4) Go shopping – best rate wins.
With steps 1-3 in full swing, your credit score will start looking much improved. This should result in a greater flood of credit card offers. Don’t be too quick to tear them up. You’ll notice a marked increase in the number of 0% credit card offers. These will be for a limited time (such as a year). Make good use of them. Transfer your balances to 0% accounts, and 100% of your payment goes towards principal. Be vigilant, though. Once the 0% term is about to expire, accept another offer and move the balance again. Don’t forget to close all accounts that have exhausted their usefulness.
For those in serious financial difficulty and on the brink of bankruptcy, a good idea early in the process would be to call up your creditors directly and negotiate some sort of settlement. You’d be surprised at how much can be accomplished with a phone call. Most companies would rather accept a portion of the balance than lose it all by having to write off the amount.
After taking the 4 steps outlined above, one could be debt free (car loan included) within 2 years. You don’t have to be an expert when you embark on the journey, but you’re sure to learn a lot along the way. Most of all, you’ll find that living debt free is an attainable goal. Don’t be intimidated by the mountain of obligations you’ve accumulated. Freedom from that mountain of debt is only a tri-fold step of focus, determination and discipline away.