How To Get Rid Of Your Crushing Debt (Slowly But Surely)

Over the past year, my wife and I have really extended ourselves.  We moved to a different city, bought a house, two dogs, and a whack of furniture and furnishings.  All stuff we needed, but we now find ourselves in an incredible amount of debt.  Add to that the fact that I am a student, we only really take in what she makes as a nurse.  Chances are you're in a better situation than this, so let me tell you how we are dealing with the problem.

Timeline

It is amazing how much guides to getting rid of debt are like diets!  "Pay off your credit cards in 6 months" is ridiculous, and we all know it, but we all just want it to be true so bad!  I will help you speed up the process, but the fact is that paying off debt, especially lots of it, is a long hard road.  We are finding that debt is making us better financial managers, and I seriously doubt we'd make these same mistakes again.  Slow and steady is what wins this race!

Consolidation

There are many companies out there that will consolidate your interest, which is a good thing, but be wary because there are those that would take advantage of you as well.  Ask a bank about this, and perhaps they can extend you a line of credit, with a lower interest rate than your credit cards, with which you'll pay them off and just be paying the line of credit.

Call The Credit Card Company

You may also find that most credit card companies will reduce the interest if you just call and ask them.  Tell them how you are really having a hard time making payments and they will most likely reduce their fee.

Budget

Most people don't realize how much they spend on a coffee here and there.  Going out to eat really hits the pocket hard, and it seemed that we went out often.  We solved this by budgeting.  You can always pay your debt off fast if you stop most activity cold turkey, but this will be a long hard road, so some pleasure is not out of the question.  We used what is known as the envelope method.  I wrote more about budgetting tools here.  Basically, you break down your expenses into categories, and then put the amount you think you'll require in each (i.e. entertainment, food, car, house, etc.).  The formula should then be (net income - expenses = what you have for debt payment).  If you have extra that you budgeted but didn't spend, you can choose to save it (debt payment will take longer but you may be able to have a holiday or something), or you can pay off more debt with it (debt payment wil go fastest).

Interest

Keep in mind that interest is the killer.  Making minimum payments will pay off your debt, but sometimes in ~40 years!  What you want to do is to make your minimum payments, but pay off what you can above that, which will take actual years off your debt payment.

Credit Card Insurance

I don't know about you, but we used to pay $0.89 per $100 for insurance.  This may not sound like much, and didn't when we had little debt, but it's $89/month for each $10,000 you have owing on credit card.  If you have life insurance, it makes no sense to have this.  Basically, if I die, my wife either gets the credit card payed off, or with life insurance, gets $300000, some of which I'm sure she can use to pay off my credit card!

If I think of more, I will amend this post, but until then, breath, and know that debt payment is a long road, but there is definitely a light!