The average American household with at least one credit card carries more than $9,000 in credit card debt. If you're drowning in debt, you're certainly not alone. Being in debt can cast a constant black cloud over your life, and although it may seem like the light at the end of the tunnel is out of your reach, with determination and the right plan of attack, you can become debt-free. Here, eight tips to help you get on the path to being debt-free.
1. Get the Facts Straight. Before you actually start paying down your debt, you need to know exactly how much you're carrying-and at what interest rates. Be honest with yourself. Collect all of your bills and write down everything that you owe, no matter how big or small. Seeing all of these numbers in one place may seem terrifying, but it will give you the big picture so that you can start figuring out the best way to manage it.
2. Negotiate. If you have a good payment history with your credit card companies, you may be able to negotiate lower interest rates. The current competitive landscape of the credit card industry makes your business extremely valuable, as these companies make billions of dollars in interest and fees. Although getting your interest fees waved completely is unlikely, a five percent reduction can save you up to thousands of dollars annually. It never hurts to ask-and a simple 10-minute call can help to put a dent in your debt. If your credit card companies are not willing to reduce your interest rate, start looking for a new card with a lower rate that will allow you to transfer your balance, but make sure you can pay off the balance before the introductory rate offer expires.
3. Consolidate. If you've successful negotiated lower interest rates and carry multiple cards, look into transferring the balances to the card with the lowest rate. Not only will you save the excess interest, but you'll have fewer monthly payments to make.
4. Attack from High to Low. If you owe money on multiple cards but are unable to transfer balances, focus on paying down the cards with the highest interest rates first. You'll still need to pay all cards on time, but pay larger sums toward the cards with high interest rates.
5. Come Clean. Although the thought of telling your friends and loved ones that you've spent yourself into debt probably makes you cringe, sometimes letting others know that you're trying to tighten your budget can be a great way to get support. The people in your life may be less inclined to suggest expensive trips or gatherings, and you may even find a partner who's in a similar situation to motivate you.
6. Stop Charging. If you're serious about paying down your debt, you need to end the cycle immediately. This can be as simple as not carrying any credit cards with you. Better yet, if you can't resist temptation and have more than one credit card, cut all but one up and keep it somewhere out of reach. This will be your emergency card-and emergency doesn't mean that the jacket you've been eyeing for weeks is finally on sale.
7. Start an Emergency Fund. It may seem counterintuitive to start saving money before paying off your debts, but if you don't, you won't be able to cope with unexpected expenses that could actually drive you further into the hole-and even if it's as little as $100 a month, it will add up. But don't keep this money in an easily accessible checking account. Instead, consider opening up a special savings account or money market account that will actually earn interest. Although the money will be easily transferable when it is needed, you won't be able to use it for spontaneous (and frivolous) purchases.
8. Eliminate. If it isn't a necessity (food, rent, car payments, medications, utilities, or phone bills) wave goodbye. As hard as it may be to give up your monthly manicure, your weekly golf outing or your subscription to the wine of the month club, getting rid of these unnecessary expenses will help you chip away at your debt even faster. Additionally, if you have monthly payments for things such as gym memberships, evaluate whether you actually use them. If you've only gone to the gym three times in the past six months, you're most likely just wasting money.
