of your pockets and limit impulse shopping. “By putting it in your freezer it is not in your pocket, but you have it in a safe place in case you need it in an emergency.”
While your cards are put away, negotiate with creditors to get better rates. You have to be in good standing to get the most out of this deal, which means continuing to pay your bills on time. In addition, use extra cash wisely. Our experts advise against spending your tax refund or bonus check on frivolous purchases. Instead, apply a portion of that to your debt and save the rest.
Pay cash for everything–debts too! Moore, who is studying full time for a second master’s degree in education while working full time and juggling life as a single mom, follows this strategy. “I pay cash-only now,” she says. “If I don’t have the cash, I don’t buy it.”
If you have savings, cash some out. The general rule of thumb is to have three months’ income to use as emergency savings. But if you’re in debt overload, spending some savings to reduce debt officially qualifies as an emergency. Take at least 25% of your savings and put it toward your debt. “Even when debt interest is at 12%, your investment would have to pay more than 18% before federal and state taxes to equal that outflow of dollars,” according to The Motley Fool, a personal investment Website (www.fool.com). In other words, you’ll get a bigger return by paying off the high-interest debt with savings, which on its own might gain only around 3% to 5%.
Find another stream of income. Before we discuss ways to earn more cash, you should know it won’t make any difference if you don’t save it or apply it to your debt. The point is, you have to change not only your income but also your mindset.
Try to find a way to earn some extra money on the side. Everyone does something well that they can do for others, such as cooking or tutoring. You can also perform a service, for example managing a Website, marketing a product like jewelry, or selling your wares on eBay. Ask colleagues about opportunities outside your company or even apply for p
ositions with temporary agencies.
Manage your own finances. Whether sharing finances or flying solo, you should always know three things about your debt: (1) how much you have, (2) how much it’s costing you, and (3) how to deal with it. If you don’t, it will always cost more than you think and take even longer to pay off. The debt may not go away overnight, but with discipline and by following these steps, it will shrink a lot sooner.
Warning Signs of Debt Overload:
- Using credit cards to pay for other credit card bills
- Skipping payments because you can’t afford them
- Constantly switching cards to get a lower interest rate on a new card
- Arguing with your partner about the bills
- Losing sleep or stressing out about your debt
- Using your credit cards