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**This post has been entered in Frugal Fridays at Life as Mom!**
Now that the holidays are over, how are you doing on debt? If you’re like most Americans, you spent a LOT on your credit cards to pay for the holidays. Of course, if, like us, you did a homemade Christmas, you probably didn’t spend much or anything on credit. But, the average American racks up $935 in credit card debt during the holidays.
But, that’s over now. It’s the new year, and it’s time to get rid of that credit card debt. This time, FOREVER!
Paying Off Your Debt
It’s not easy to pay off credit cards. First, take a look at the previous entries about Ways to Save Money Around the House, Creating a Budget, and Cutting Spending. If you can cut spending and save money around the house, then you are on your way to getting your money under control.
Make sure you have a place in your budget for paying off debt. Any extra money you set aside should be placed towards paying off your credit cards. Follow these steps:
1) Sit down and look at what credit card debt you have. Pull out ALL your cards, including individual store cards. Write down the balance on each card and then write down the total.
2) Call the companies and cancel ALL the credit cards. They will try to get you to stay by offering you lower interest rates, increased balance limits, etc. They may get very insistent or even nasty. Be firm and say “I want to cancel this card and I am not interested in any other options or services.” Also, request a letter be sent to you confirming that the card has been canceled so that you have proof that the account is closed.
3) Cut up ALL those credit cards immediately so you are not tempted to try to use them. Get rid of them. If (when) new offers come in the mail, shred them and throw them out. Don’t get any new credit cards. Don’t be sucked in by “rewards programs” or the promise of “good credit ratings” or anything else. Just get rid of the cards and don’t get new ones. Don’t get sucked into the idea that you “need” a credit card for emergencies, either. You don’t. That’s why you should have an emergency fund. You never, ever “need” a credit card.
4) Pay off the card with either the highest interest rate or the lowest balance first. Dave Ramsey recommends the lowest balance so that you can pay it off quickly, which gives you the psychological feeling that you’re doing something about your problem. He calls it the Debt Snowball. But we recommend paying off the highest interest rate if it is significantly higher than the others. This will save you money in the long run.
5) DON’T fall for the “debt consolidation” schemes. It will not actually help you, it is borrowing debt from one place to pay off another. Don’t use a home equity loan or another credit card to pay off the debt for the same reason. Shifting debt around is not actually going to help you.
Make It A Priority
It’s very important to make paying off your credit cards a priority. Of all the types of debt you have, credit cards are usually the easiest to obtain and use, and the ones on which you pay the highest interest rates and also the highest fees. It’s not something you want to get caught up in. Or, if you already are, it’s something you want to get away from immediately.
Credit cards should never be used for necessities (well, or at all…). Cut all non-essential spending if you have to, sell an extra car, or get another job. If you HAVE to use your credit cards to buy groceries, something is very wrong with your finances. Redo your budget, take a much closer look at your finances. Where is your money going? Get rid of cable, internet, anything you don’t really need. Hold a garage sale and sell off anything you don’t need to raise money. You must be able to pay for your basic necessities without any form of credit. Even if you have to get a job at Taco Bell making $9 an hour for awhile.
Don’t Let Them Take Advantage of You
Where you might run into trouble with this is if you call the credit card companies (or they call you) and the companies try to tell you that you MUST pay your credit card bills first, before you pay for your necessities (while paying credit cards should come before non-necessities like cable, cell phones, etc. it should never come before groceries, gas, housing, etc.). Tell them NO. You must pay your housing, your food, your basic transportation (gas and insurance…if you owe a lot of money on a car, SELL it and get a $1000 car that you can pay off immediately), health care, etc. Debt payment comes ONLY after you have met your basic necessities. If they harass you, hang up on them. Tell them not to call. Don’t answer the phone. Get nasty back to them. Do not let them bully you.
It’s against the law for the credit card companies to harass you. There is a law called the “Fair Debt Collection Practices Act.” They can only call you 8 AM and 9 PM (your local time), and only a reasonable number of times per day that a normal person wouldn’t feel is harassment. They can’t tell you that they can put you in jail, they can’t tell you they’ll sue you. Credit card collectors knowingly break this law because they know that you are not aware of this law, and that they can create fear by saying these things to force you to pay. Or, they can make you feel guilty to try to get you to pay. This is part of their tactics, it is psychological, and it is ILLEGAL. It is also common practice for companies to call your neighbors and mention that you owe money. This, too, is illegal. They can’t discuss your personal financial situation with anyone not on the account. It is a tactic to embarrass you but they should not do it.
If you do not make a payment at all for 180 days, the credit card companies will write it off as a loss. They may try to sue you, but they won’t get much money from you. They will often settle (with or without a lawsuit) for about 25% of what you owe, a year after you stop paying. This is a worst-case scenario; if you CAN pay it back, you should. But if you literally cannot afford to pay your debt and take care of your basic needs, your basic needs come first. Always.
You CAN Do This
And yes, you CAN do this no matter what your situation. When we got married, our house payment was 60% of our take-home pay and we didn’t make enough money on paper to pay our basic bills. We had credit card debt and used credit cards for groceries and other basics. But then, despite our lack of money, we canceled all our cards and started getting serious about paying down our debt. I took a job working as a therapist for kids with autism part time. Ben worked a second job part time. I did some freelance writing, too. We made money however we could, and we got rid of our cable, subscription to Netflix, and anything else we didn’t need.
Most importantly, we remained faithful in our tithing. 10% of our money went to God even when it seemed like 100% wasn’t enough to live on. And somehow, with our faithful giving and humble spirits, we managed to pay off all our credit card debt before Ben ever got a raise.
Keep Your Head Up
Don’t listen to your friends if they try to tell you that you need a credit card, or that you have to pay if you can’t afford to, or that you should give in to the companies’ bullying. If you truly can’t afford to pay, there is NOTHING the credit card companies can do other than sue you (and, of course, tack on lots of extra charges in late fees and finance charges, which will go away mostly if they sue you), and that will take them a year. They can garnish your wages if they sue you, but the truth is, you hold most or all of the power in the situation. They try to use their psychological warfare to make you feel terrible so you’ll pay. And, as I mentioned in my review of Maxed Out, some people succumb to the pressure and actually run away or commit suicide. But you CAN rise above this, get away from your debt, and rebuild your life. IF you’re willing to make serious and permanent changes now.
Paying off your credit cards is an important step to take towards financial responsibility. In the future, plan for major purchases and save for them. Then, when you make those purchases (be it a $200 appliance, a car, or even a house), they are YOURS. You have saved, and you have EARNED the right to own it. Free and clear. If you’ve paid in cash, and something bad happens later (losing a job, etc.), it’s still YOURS. You don’t have to worry that anyone’s going to come and take it, or that you’ll have to sell it to pay for your life. It’s an exhilarating feeling!
Do you have credit card debt? Are you working to pay it off? How is it going?