Getting rid of debt involves quite a few things. The most helpful one, of course, is having a steady income. Contrary to belief, it does not have to be a huge income. But obviously the more you make the easier getting out of debt will be. The common denominator to becoming debt free appears to be consistently saving SOME PART of your income, and then, of course, paying off your bills.
So be prepared to become a little frugal in your lifestyle. But don’t worry, it wont hurt much. As a matter of fact, done correctly, you can still have just as much fun, and do just as many things as you were doing before. They are just done in a different way.
Try to use your own resources and smarts to your advantage. ANYWAY you can think of to save money, will help in your journey to becoming debt free. Such as Coupons… while they may have a “stigma” about them, they are truthfully “FREE MONEY”. People will commonly bend over to pick up a penny, yet throw out $100’s in coupons a week for no reason. I would much rather have that $100 in my bank account, than worry about what people think of me for using them! Because that $100 turns into $1000’s as the years goes by. Every dollar you save, gets you closer to being debt free!
IF you cannot pay off your credit cards each month, try to combine them onto one card with a lower interest rate. Many companies offer super low transfer rates, but be careful to pay them off before their due date to avoid any large jumps in the interest rate. And it IS cumulative! Then once you get it paid off, KEEP it paid off, put your other cards up somewhere safe and only use the lower rate cards for purchases. I personally like to charge all my purchases to my credit card during the month to let THEM (the credit card company) foot the bill for 30 days, for all the things I did or want. I then pay it off when the bill comes due, leaving my money in my bank to draw interest while waiting on the bills. Its not a huge amount of interest but its better than nothing, and since I am not getting charged any interest for paying off the balance, its all goes to the PLUS side of my finances.
Be smart, RESPECT and THINK about your money, TALK about it with your spouse (if you have one) let it work for you, instead of you working for it! You need to become the master of it, not the other way around. Being in control is a very powerful feeling that brings peace of mind to those knowing how to work the system to their advantage.
So take back the shoes & clothes that don’t fit, instead of leaving them in the closet, Get a refund or a store credit, even if you have to pay a restocking fee, its better than let it gather dust, or throwing it away or giving it away to charity.
My story is one of logic, and opportunity, as well as luck.
I owe a great deal of my financial prowess to one of my ex-gfs, who opened my door to understanding the “way” of savings and being smart with what little money I made. Watching what she did with her money, convinced me that I could do way more with my income, if I was willing to change a few things and give it a good try!
So a little bit about me, I am in computer graphics by trade, so not a ton of cash being generated when compared to many other career fields. But it does better than a few other careers that I might have chosen.
I live in and own a home that I share with a roommate. He pays a set amount of rent, along with half the utilities each month. Very similar to most people in that you will probably have a spouse that ads to your income pool. Multiple incomes multiply YOUR gross savings POTENTIAL tremendously! So USE that extra income, if you can! And for as long as you can!
Anything you can do to share your expenses will cut YOUR expenses and accelerate you savings and/or goal of becoming debt free.
My Story starts like most people, I had a house payment, a 30 year mortgage, at 8 percent interest (1990), that was almost $900 a month, and at the time this was a fairly average payment, and if not lower than average interest rate for my area. (If you have a high interest rate, refi if possible!)
As my salary increased, I started paying more and more on my principal, in hopes of paying my mortgage off much earlier than the 30 years note that I had signed. And while I did not pay it off early (not yet), paying it down, did allow me to take out a second mortgage. Some of you might think this was a crazy thing to do, but this was MY path, so read on to follow my logic in this direction.
My idea was to get a second mortgage (Home Equity Line Of Credit, HELOC) with a variable rate based on prime. (FYI as of 3/23/14, 3.25% is my current rate) Its always a good idea to pay off you high interest loans and credit cards with a lower rater loan or credit card. However the genius part (PAY ATTENTION) of my refinance plan is that I paid off my 1st mortgage WITH my HELOC! And a big bonus, there were no closing costs, because I had gone thru the bank that had given me the 1st mortgage in the first place. They were tickled to give me a $100K credit limit against my house. The only “catch” however, was they did require me to make a payment to “something” for at least $10K to activate the account… .Much to their chagrin, (and many VERY vocal objections) they allowed me write a check to THEM to pay off my 1st mortgage. So my revolving line of credit, (Home Equity Line Of Credit or HELOC) became my 1st mortgage. Doing this saved me almost 5% in interest charges, without any refinancing or closing costs! This “trick” eventually allowed me to pay off my house early, almost 10 years early!
I would have paid it off even earlier, but a few years later, I had to use my HELOC to live on, as I had lost my job (and lived on unemployment benefits and my HELOC) for almost 4 years. While unemployed I would yard sale, and go to auctions, and resell things I found on ebay to help with the bills that I still owed. I also did odds & ends for cash that would help until I found a full time job again. While there was not a lot of money coming into the house, it did allow me to maintain my household, and keep all my bills up to date. A LARGE part of why these bills were easy to pay was because of the HELOC’s option of “interest only” payments. So a $195 payment VS a $900 payment, is a much easier payment to manage for a few years, if you have to!
Once my job status changed BACK to employed, I again started making large payments to my HELOC to pay the balance back down again. I again paid off my house in a matter of less than 18 months. So for all practical purposes, I was again debt free outside of the usual utilities. All the cars I own are paid for in cash, and most get 25-35 mpg depending on which one you want to talk about. I don’t believe in buying new cars, because of the depreciation rate being so crazy. And a $400 payment vs driving a car that already gets 28 mpg with NO payment seems fairly obvious.
So by paying my house off again for the second time, I found myself in a great position to invest in real estate, and bought a foreclosed home from the bank. Literally writing a check for the 2nd house from my HELOC. ( I now have the deed in hand!) I am fixing up the house to eventually live in sometime in 2014. (I am taking my time to move in) And will rent out the 1st house when the time comes to move. Which will give me an additional income stream. All the while I am again paying as much towards my HELOC and other bills as possible, while trying to get the 2nd home livable for my upcoming move.
In addition to STILL yard saling and auction hunting, I buy and sell car parts, both for a slight income and to allow my hobby to pay for itself (restoring older Japanese cars) Its not an expensive hobby, but does have its virtues, along with saving rare cars from the crusher and getting great mpg, I very much enjoy the hobby and meeting new people. Which after everything is said and done, overall helps me make larger payments back to myself (paying my bills)
I pay off my credit cards every month to avoid giving the banks any interest, and do my best to never be late on a payment. I do not spurge on expensive foods or drinks, but I will take a nice cruise about once a year. It all boils down to ones own priorities and what each interest or vice is worth to that person. I CAN watch a movie on TV , while others have to spend $20 to see the latest flix on the big screen…. I CAN cook a burger on the grille, while someone else has to have a $12 from Ruby Tuesdays… the difference is I CAN go on a cruise anytime I want, and still be nearly debt free, and they cannot. Choices are never easy, Smart choices are even harder. And nothing is ever FREE, every action has its costs (or savings), must be paid for by an action or choice. I personally enjoy having money I can spend however I want, and on whatever I choose, without borrowing it.
Just a few things you can do to get there
1 Get a NO-Fee online checking account that pays SOME KIND of interest on your balance, (some banks will require a minimum balance to be free, but look at it like this, you are guaranteed to have a certain amount of interest coming in) So having and making online payments for your bills saves you money in stamps, time, gas, and in printing checks! Also setting up scheduled payments will help guarantee no late fees from your billers. I’ve been banking at AmericanBank (for over 10 years) located in Allentown PA, their website is www.ambk.com. and I absolutely love them (and that is a FREE advertisement by me!)
2 Setup a savings account, and have at least $50 a week, transferred into this account from your checking account (you should consider this your safety net) if you can do $100, do. HOWEVER I do not recommend saving anymore than $100 a week WHILE you still have credit card bills, Pay off you BILLS first! Having a savings IS important, but it will not do you much good, if you have monthly bills that are more than your savings. REMEMBER THE KEY IS TO GET, and STAY OUT OF DEBT. At the time of this writing Capitol ONE has the best savings account I have come across.
3. Drive your car for as long as possible, (at LEAST 3-4 years AFTER its paid off!) Once its paid off, use that extra money to pay off your credit card bills!…. and when you finally are forced to get another one. Be smart, find the cheapest one that fits your needs and lifestyle. One with better mpg is always a plus, especially one that will be used for daily commuting to and from work. Cars have become status symbols instead of what they really are, tools, to be used. ONCE everything is paid off, if you want something to “show off” THEN get it! But keep your basic transport for daily use, and you will appreciate the “SPECIAL” one much more, and will last longer, and maintain its value as well. I don’t worry about dings in my old Camry! LOL
PLEASE NOTE: the links and companies that I use for MY savings and checking accounts, are all just personal choices I have made. And are just a suggestion based on my own personal dealings with them. I have no other affiliation with them, and have not been compensated to mention their names in my article. While some banks may have rates higher than the banks I have listed, my choices are based on a combination of advantages, some might not consider, like minimum deposits, fees, and perks like no fee checking, no fee ATM usage or ATM re-imbursement. So again, make your own choices, but take these things into consideration, there are lots of sneaky fees banks charge customers that steal from your savings!