This is a guest post submitting by Ryan of Uncommon Cents. He discusses (hopefully) simple personal finance. Thanks Ryan for the guest post!
The road to becoming debt free is often a long and difficult one. As I stated in a post on Uncommon Cents, debt can be thought of on a scale, and prioritizing what debt to work on first is key in reducing your debt. Some may take the snowball approach while others may try to pay off their highest interest debts first. When I got out of graduate school, I didn’t have too much credit card debt, at least not compared to lots of my friends and coworkers, but in my mind, any was too much. I spent the first year out of graduate school doing whatever I could to pay down the $6000 or so that I owed. I also realize that my debt could have been much worse, but I was able to restrain myself in a lot of ways (what I later learned to be financial discipline) and I also worked throughout the time I was in school, which ended up helping reduce the length of my debt free journey considerably. I also tried to take the most direct route to being debt free and didn’t work on building up savings until that debt was gone. But whichever route you take, here are a few things that can help you succeed:
1) Don’t incur new debt!
I’m not saying you need to cut up your credit cards or freeze them in a Ziploc bag, but somehow, some way, you must prevent falling into the habits that got you into debt in the first place. Consider paying cash for items. Work on a spending plan that keeps you living below your means. Do whatever you need to to not run that debt up again. For me, doing a regular review of what my debts are–even when they’re ones that get paid in full every month–helps me keep my spending down.
2) Scour your existing spending for places to cut back.
Eating out is a typical expense for cutting. Sometimes more drastic measures can make a substantial difference, like terminating your landline and only keeping your cellular phone, or giving up television altogether to recoup the money spent on cable. Do you buy a Super Big Gulp or a Starbucks latte every day, sometimes more than one in a day? Think how those dollars times 365 might make a difference in next year’s bottom line.
3) Use free (or at least lower cost) services.
I’m a big reader and I have a large personal book collection at home, but in the last few years I’ve become a heavy user of the public library. Part of this is to reduce clutter (while I love books, I also love having space available on my bookshelves), part of it is to reduce spending, and part of it is environmental awareness–the less “stuff” I have, the less I affect the environment. For purposes of this blog, however, the concern is finance, and as a taxpayer, I’m already paying for the public library–I may as well use it. And the public library (at least here) doesn’t just offer books; it has a free magazine swap table, free CD borrowing, and $1 DVD/VHS rentals–for a week. Netflix is great, but it can’t compete.
4) Ask for a reduction in interest and use balance transfer offers (with caution).
Much to the surprise of many, sometimes all it takes to get a better credit card interest rate is to call and ask for one. There’s lots of competition out there and the credit card companies would rather you keep paying them at a rate that’s lower than to stop paying them at all (and pay one of their competitors). There’s also the phenomenon of balance transfers; typically a card you may be just opening will offer a limited time special, like “0% for 12 months”; sometimes cards you’ve had for awhile will offer similar rates, although not as frequently and often not quite as tempting. There’s some danger to using these, but if you are disciplined (which is an issue for most of those with credit card debt, because if they were disciplined, they’d be unlikely to be in such straits) this can be a huge help.
5) Make sure the unspent dollars from your cost cutting measures goes toward your debt.
If you’ve seriously figured out your spending plan and you are definitely spending less money, make sure those dollars actually go to paying off your debt. If you’ve managed to cut $100 a month off your monthly expenditures but you put those $100 toward two nice dinners with your lady friend, you haven’t done anything with your debt. Actually make sure the payments on your debt reflect the amount you’ve cut. If your calculations are showing that you spent $50 less on food this month, add $50 onto that credit card bill payment. It’ll help your financial situation lots more than keeping it in your checking account.
6) Find ways to increase your income.
This could be as simple as selling some of your clutter in a garage sale, or maybe on eBay. It could involve doing some contract work in your specialty, or overtime at your job. For me, extra income means a second job at night for eight hours a week. While cutting costs is typically the most effective way to improve your budget, earning more income can really help. In my case, my part time job brings in about $800 take home every month; that makes a big difference in my bottom line. While I don’t use it (any longer) to pay off debt, if I had some unsecured debt I certainly would; in my case it helps me place the maximum amount of my primary job’s income into my 403(b) plan.
Debt in and of itself is not horrible, but out of control, unsecured debt is a serious threat to the financial well being of many–credit cards being the biggest culprit. It’s very easy to fall into the debt trap. Getting out is much harder. It requires discipline, wisdom, and hard work, but in the end, being debt free is a great feeling that makes all of that sacrifice well worth it.
Thanks again Ryan for the guest post!