Has relying on credit pushed you to the brink of disaster? Time to face the problem.
No one ever intends to dig themselves into a deep financial hole. Â Life’s unexpected events often throw a curve to even the most stable financial plans, making credit the choice of last resort to meet monthly obligations. Many well-meaning people think living off of credit will be a short-term solution; the new job is just around the corner, the medical issueÂ won’t be serious, the divorce decree will read differently.
Others have not experienced a financially back-breaking life event, but have built a lifestyle that their income simply will not support. Unfortunately, credit, not cash, has become the spending tool of first resort.
Which ever group describes you, relying on credit nearly always leads to disaster. The solutionÂ is a three-step process:
1. Stop Charging
Just like dealing with a sinking boat or a bullet wound, your number one priority is to stop the leak. That means you must quit using your credit cards immediately, and adjust your spending plan (i.e. budget) accordingly. During this “credit fast,” focus on spending only cash and paying down your credit card balances.
If you’re really serious about no longer relying on credit, you should destroy the cards, so that you can’t use them. You can always order new ones once you get your finances back in good health and credit card balances under control (to less than one-third of your credit limits).
Remember to keep the accounts open, even when you stop using the cards. Closing them could shorten your credit history and hurt, not help, your credit scores. In the meantime, declare war on your outstanding credit credit card balances. Devote any extra income to getting rid of what you have, and resist the temptation to create new debt.
2. Increase Income
Be willing to take on a second or third job, start a side business, or do freelance work.
Do you have a particular passion, expertise, or area of knowledge? Make extra money by teaching it to others, whether at home or at your church or other space in your community. People will pay for individual or group instruction for everything, ranging from cooking to vocal lessons to exercise classes.
Think of arts, crafts, jewelry and other things you can make and sell. For example, you can learn to knit blankets, sweaters, hats, and other cute things to sell as gifts for babies in your neighborhood.
Finally, look around for things you don’t want anymore, such as clothes, shoes, video games, or books, but others might be willing to buy. Craigslist, eBay,Â or an old fashioned yard sale could raise hundreds of dollars to help you pay down your credit card balances.
Whatever you do, resist the urge to spend the extra money you raise. Use this money to help make relying on credit a thing of the past, not to just splurge.
3. Decrease Expenses
Learn to do without nice-to-haves, so that you can pay for must-haves. Two major expenses to consider: housing and transportation. Consider moving to a less expensive living space or taking on a roommate. Decide whether you could trade down to a car with a lower car note or save money by using public transportation.Â Cancel or postpone all but the most necessary of major purchases. Now is not the time to splurge on a vacation or a state-of-the-art home theater system.
Facing the financial facts can be hard. Changing ingrained habits is never easy, but it is not only worth the effort, it is essential to a yourÂ current and future financial stability. Relying on credit, on the other hand, is a guaranteed way to financial disaster.
To determine if your finances are on the brink of disaster, try living without credit for at least one month. Â If you discover you can do it, it is likely that credit is being managed responsibly. Â If not, reach out to the National Foundation for Credit CounselingÂ for help.Â To locate the NFCC Member Agency closest to you, dial (800) 388-2227, or go online to www.DebtAdvice.org.
Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, personal growth/relationship education coach, and co-founder ofÂ Grown Zone,Â a multimedia initiative focused on personalÂ growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter atÂ @AlfredEdmondJr.