Personal Finance in Paradise – Debt Elimination Series: Part 2 – 5 Steps to get a handle on your debt

Hanauma Bay

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This is part two of the personal finance in paradise debt elimination series. The focus of today is to set a step-by-step process of getting your credit card debt down, and to be able to set up plan to follow so there is no wiggle room..

The major thing that holds people from investing and building wealth is credit card debt. If you are getting charged anywhere from 12.99% to 24.99% on credit card debt, it is going to be an uphill battle to building wealth if you’re losing money by paying interest.

This is a simple detailed plan of what to do and how to get out of debt so you can begin building wealth.

1. Find out where you are: in scientific studies, it has been found that people are really bad estimators. When it comes to managing their time or estimating the amount of debt that they owe, people tend to underestimate the amount of debt they really do have in their accounts. For instance, a person may think that they have $10,000 worth of debt, when in reality it can be anywhere between $12,000-$15,000.

There are online websites such as CreditKarma.com, credit.com, and mint.com that’s are good resources which I have used in the past. These resources can access your account information and give you an overall picture of the types of debt that you have.

CreditKarma.com and Credit.com both have access updating your FICO scores as well. These may not be completely accurate at the time, but it gives you a good idea of where you currently stand.

Think of it as your adult report card. It gives you a snapshot of how well you are doing. If you have a negative net worth you can be doing better, and if you have a positive net worth, what can you do to invest more.

2. Negotiate Interest Rates: one of the ways to pay less on your credit cards is to lower your interest rate. It’s pretty easy to do, all you need to do is call your credit card company to ask for a lower interest rate. Give them a compelling reason, like you been paying on time, you have been a longtime customer with the company, and or you have also been struggling with payments. It may not work the first time or with the first person that you speak with, continue to call and ask for manager if necessary.

I personally have called the credit card companies when I have missed the payment, and my interest rate shot up from 9.99% to 24.99%. They were very lenient and they had told me that I needed to pay on time for six months or my interest rate would shoot back up to 24.99% if I miss another payment. It’s worth a try, you may get shot down, continue until you are able to get that credit card breakdown.

3. Stop getting credit card offers: when I began college, I got stacks upon stacks of mailers from credit card companies to sign up for their cards. To prevent being enticed by the credit card companies stop the credit card offers from coming to you.

One way to stop credit card offers is to contact one of the three U.S. credit bureaus three credit bureaus, Equifax, Experian, and Transunion, and have them remove you from all pre-screened credit lists. When you contact one of the credit bureaus they must contact the other two to let them know that you do not want to receive any offers from credit card companies.

Another way of doing this is to go to optoutprescren.com and click on the bottom link that says “Click Here to Opt-in or Opt-Out”, and fill out the the form and mail it in. I sent in the information, and I do not receive any other offers.

4. Choose Your Strategy: Use the debt snowball strategy, popularized by Dave Ramsey, which lists your debts in order from smallest to largest. You start to paying off the smallest debt with all the extra money you have while paying the minimums on the rest of your debts. Once the first debt has been paid off, take the money you are putting to the smallest debt and use that money to pay down the next debt on your list. Continue doing this until you you are done paying off your debts.

5. Track Your Progress: Make sure to log your progress. It’s easier to keep going if you know how well you have been doing.  You want to be able to create good tracking habits so that you can focus on the rest of your life.

One good habit is to put reminders on your phone calendar every month to update your accounts, or piggy back a habit on something that occurs regularly.

Personally, I track my information on Quicken and I forecasts my expenses for the month on an Excel sheet. I get paid on the 15th and the last day of the month. I update my accounts and prepare for the next month on payday.

it doesn’t matter how you track, just find a system that works for you.

 

10 Things Americans Waste Their Money On

Dave Ramsey posted a while ago 10 Things Americans Waste Their Money On, and they are:

  1. Credit Card Interest
  2. Deal Websites
  3. Appetizers
  4. ATM fees
  5. Overdraft Fees
  6. Speedy Shipping
  7. Designer Baby clothes
  8. Unused gym memberships
  9. Premium cable packages
  10. Daily coffee trips

I agree that some of these are wasteful, for instance #1 and #4.  There shouldn’t be any reason why you should be paying fees on things you could get for free.

My personal experience with the top ten are

  • Credit Card interest – Since I have a balance transfer on my credit card, the company is trying to have me pay interest. I will be paying the remaining balance this month so that I won’t have to deal with that anymore.
  • Deal websites – I don’t shop on deal websites, but I do occasionally take part on deals when it comes to getting cheaper quality clothing. I like to shop at H&M or take advantage of workout clothes from Hylete.
  • Appetizers – If and when I go out with my wife or friends, sometimes I’ll order an appetizer as my main dish. It comes out faster and it’s generally cheaper than a whole meal.
  • ATM fees – I don’t pay these ever.
  • Overdraft fees – I have an overdraft account that helps me speed up the process of paying down my debt.
  • Speedy Shipping – normal shipping is fine for me. I’m not in a rush for immediate gratification.
  • Designer baby clothes – I don’t buy these
  • Unused gym memberships – I go to Crossfit a 3-5 times a week. So my membership is fully used.
  • Premium cable packages – My wife pays for Netflix, and I tend not to spend too much time watching TV.
  • Daily coffee trips – I don’t drink coffee

What do you think of the list above? How do you compare to what Dave Ramsey thinks people waste their money on.