Clearing The Debt for 2012

Make The Holiday Bills Disappear

Happy New Year! The holiday season is finally over. Now we’ve got to figure out how to pay for all those “season’s greetings.”

November and December aren’t the most expensive months of the year solely because of Christmas. In addition to buying gifts, you’ve got to shell out hundreds (sometimes thousands)of dollars in holiday travel. Flights home to visit family and hotel stays can quickly run you into triple digit debt.

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Plus it seems like every friend you’ve got and every office in the nation loves to throw holiday parties. In most instances you’re expected to shell out money for a hostess gift or for a gift to play that silly “Secret Santa” game.

It all adds up to a lot of debt if you don’t plan ahead. If you are behind the eight ball this January, trying to figure out how to pay off the debt you’ve built up over the holidays then you need to read this article.

I’ve been advising readers for years on getting out of debt fast strategies. Below are my FIVE BEST tips to get you out of the red and back into the black in the quickest amount of time.

First off, you need to take an inventory of every bill you owe. Make a list of all outstanding balances, the interest rate you get on each one, the minimum payment and its due date. Once you’ve done that you can prioritize your bills. Your top priority bills are the ones that are secured debts. Secured debts are those that have assets backing them up. These are the ones that if not paid on time can be taken away or repossessed, like your home or car.

Once those debts have been taken care of start paying off debts in which the balance is more than fifty percent of your credit limit. For example if you have two credit cards: One has a balance of $600 and an overall credit limit of $1,000. The second one has a balance of $1,000 and a credit limit of $10,000. Despite credit card number one having a smaller balance you should pay it off first. Credit cards that have balances that exceed fifty percent of their credit limit hurt your credit score.  Pay those off first to improve your score and your debt load.

The next most important bills to pay are the ones with the highest interest rate. It doesn’t matter what the balance is, pay off the one that charges you the most in interest each month, and work down the line till you pay off your credit card with the most favorable terms (lowest interest rate). Starting with the highest interest rate ensures you’re targeting the most costly credit up front to minimize the total amount of interest you pay.

Another “get out of debt quickly” strategy is credit card balance transfers. This strategy works by switching your balance to cards with lower interest rates, thus saving you money. If you have an outstanding balance on your credit card with a 25 percent APR, transfer the balance to a card that offers you 18 percent APR. The lower your average interest rate on remaining credit card debt, the more of a dent each payment makes in that remaining balance.

The best way to utilize this strategy is to open a new credit card that offers an introductory zero percent APR on balance transfers for a set amount of time (usually six months or a year). Transfer your debt from your credit cards with higher interest rates and then pay it off month after month so that you are all paid off by the time the introductory period ends.

If you are worried about services being cut off (water, phone, electric) or repossessed you need to reach out to the creditor. Explain you got in over your head but are going on a stricter budget. Many times these companies are willing to work with you. This is especially true of customers with decent credit scores and ones who have been on time with payments in the past. Remember these companies want to get their money and continue to receive business from you in the future.  Ask for an extension or to work out a payment plan based on your pay days. Check out creditcards.com to look for cards that offer zero percent introductory rates for balance transfers. I was able to find more than ten such offers earlier this week.

You’ll never get out of debt if every month you charge more purchases. Until you are out of debt you need to put your credit cards away and pay for everything in cash. Cut them up, freeze them in block of ice, bury them in the back yard, etc. Do whatever it takes to ensure you stop racking up more debt. Paying for things with cash allows you to track your spending. When you spend money on a credit card it doesn’t hurt as much as when you actually part cash from yourself. Pay bills with checks, use your debit card for all transactions that require a credit card (gas), and set up automatic monthly payment transfers.  This will ensure that you stop adding to your debt because once your cash is gone, you’ve got no more to use until your next pay day.

This cash strategy works best when you create a monthly budget using the 50/30/20 rule. Essentially you are breaking down your expenses into three categories. The biggest category (50) is the one for your monthly bills. Total your rent/mortgage, car payments, cell phone bill, all utilities, etc. Include your debt repayments in this category.  This is how much you need to cover each month. Whatever money is left over is then divided into two more categories (30 and 20). Use sixty percent of the left over money to have fun with and put the remaining forty percent in a savings account. Now you are paying off your debt, living within your means and saving money for the future.

Every person who has climbed out of five or six digit debt will tell you they did it by not only paying more than the minimum balance every month but by increasing their income. The more money you have to throw at a debt the less money you have to pay in interest. I strongly encourage you to check out Mark Patrick’s offer this week to increase your income. League of Power has worked hard to put together the best (and easiest) business strategy to significantly increase your monthly income. And I promise you that you won’t have to quit your job or devote every evening and entire weekends to do it.

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Keeping Money in Your Pocket,

Nancy Patterson


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