10 Ways to Have a Debt-Free 2014
It’s the Chinese New Year and we all hope to start on the right foot for all our 2014 plans. However, this is a little harder to pull off if you had plenty of debts to take care of the past year, with one or two still dogging your footsteps every way into the new year. You and your credit card company certainly aren’t going to be happy with each other if you continue side-stepping the issue. So, here are some ways to handle your debt wisely:
Table of Contents
Know where you stand.
Before you pay your debts, know where you stand. List all your payables and figure out how much you owe. You’ll never hit your target if you don’t know what it is; be brutally honest with yourself.
Track and budget.
Get an accurate sense of your monthly spending and track your costs. This will serve as the foundation of your budget. After that, get an ax and take away all your wants and focus on your needs. Cut out Friday nights, some pizza meals, and some movie dates. It can give you the jumpstart you need to get started on clearing away your debts.
Stop creating new debt.
It’ going to be impossible to get rid of your debts if you don’t control your spending habits. Bear in mind that you badly need that financial peace of mind so cut up your credit cards or freeze them.
Pay more than the minimum payment.
Credit card companies love to put that minimum payment in bold because it means interest. And interest to them means more debt for you, and money out of your pocket. Make your sacrifice today and you’ll save more in interest payments.
Pay off debt with the highest interest rate first.
For obvious reasons, prioritise paying the company with 11% interest rate than those with 9%, 5%, etc. Focus all your attention on taking that debt off the table. Pay it off before even touching other debts. The lower ones will still accumulate interest in the meantime, but since you’re paying with interest, might as well do it at a lower percentage.
“Snowball” your debts.
If all the interest rates of all your credit cards are almost the same, make the minimum payments on all and pay off the balance of the lowest one so that’s one debt off your chest. Once done, add the payments to the next-lowest debt you have. Repeat until all your debts are cleared. Fun? No, but, the process of lessening that pile each month will make the cycle more than bearable for you.
Make use of promotional offers like transfer-all-your-credit-card-balances-to-us-pay-a-lower-interest promo. Moving from an original sky high 18% per month to 5% is worth it. But, take care and examine the offer closely for hidden charges. Always read the fine print.
Use your life insurance.
Yes, borrow from your own money. Though the interest is typically good below commercial rates, you can take your time repaying it. Yes, please repay it even if it’s yours.
Find your motivation and support.
Create goals and stay focused. Find a community to swap stories of successes and failures with for support. If you’re tempted to overspend, remember some of those stories to keep your eye on the bigger picture.
Track your progress and reward yourself.
Assess your progress every few months. Put reminders in your calendar to check up on your finances and take note of your progress.
Credit is not a tool. Remember that banks and other financial institutions are businesses and they are all likely to make money. So pratice these tips to help you clear away your debt.
And enjoy a debt-free time this 2014!
With a goal to help Filipinos lead healthier financial lives, Moneymax regularly publishes tips and tricks on personal finance and lifestyle, among many other topics. For more finance-related news and articles, follow Moneymax on Linkedin.