Erase Debt Now

Getting yourself into debt is unfortunately very easy but how to erase debt will take a little more time and effort. Don’t give up – it is possible!

One of the main problems in recent times has been the easy use of credit cards. Using credit cards has the feeling of having money to spend but what it is important to remember is that this use of money on cards is an actual loan. As a loan it must be repaid.

One of the first steps on how to erase debt is to recognise your situation, acknowledge it and take action. Your first three action steps follow:

· Prepare a budget. You need to know what you have coming in and what is going out and whether you can cut down in areas. It makes you more aware of your spending habits and may even shock you.

· Record your debts including the current balance, the repayment amount, the interest rate and the term of the debt. If it’s credit card there won’t be a term it just goes on forever unless you take action.

· Increase payments to the highest interest rate debt while only paying the minimum to the others. You will want to get rid of the highest interest debt first as you will pay more for this in the long run. Do not increase the debt by charging more to it.

This is the simplest self action you can take to control your debt. Be honest with yourself and be committed in order to erase debt.

 

 

Track Your Spending
It is important to keep a track of your spending if you are serious about finding ways to erase debt.  This is helped by doing your budget but what about the miscellaneous purchases you make during the month? Buy a small notebook and for a couple of months make a note of what you spend your dollars on during the week.  You’ll be surprised at where your money actually goes!

Cut Unnecessary Costs
If you smoke try to cut it out.  Easier said than done but perhaps you could cut down?  Work out how much you could save it may be the incentive you need.

While enjoying a cup of speciality coffee and a bought lunch sounds innocent enough it may surprise you at how much you actually spend over the year – go on work it out after your record keeping!  Make your lunch and only go for coffee as a treat once in a while.  Don’t make it a spending habit. 

It is important that you begin to save more of your money each month and start using the money that you save to pay towards your debts.

Pack Away Your Credit Cards

If you continue to add charges to your credit card you will never pay off credit debt. And if you are not paying your credit card bill every month in full, buying items with your card only ends up increasing the cost of the purchase. If you are not able to pay in cash, you should wait until you have saved for the item. Do you really need it or is it a want?

 Concentrate on Paying Off Your Debt
To erase debt you must make the repayment of your debts a priority. Always pay the minimum at the very least. Any spare cash that you have after paying your bills should be used to repay your debts. 

Start Saving For Emergency Needs
So often getting into debt has been caused by an unexpected expense that has been placed on the credit card.  Once there, it is very difficult to get rid of.  Emergencies and the unexpected happen all the time but to avoid getting into debt you can cater for these surprises.  As you work to erase debt and the loans are finally gone you can start putting aside an amount for emergency needs. A rule of thumb is to allow for three or four months worth of income.

Credit cards have gained the reputation of being the major source of uncontrolled debt and this unfortunately is true. The idea is to use your card wisely as it can be the perfect budgeting tool. Learn to use, not abuse, your credit card.

The basic rule for credit cards is that you should use it only for convenience. That is, when you could pay for the item now but it is more convenient and easier to pay now on credit. If you can’t afford it now, don’t buy it in the hope that next month somehow the money will magically appear.

Make sure your card has an interest free period (grace period) and check when this period finishes.When the billing period begins so do the interest free days and you need to repay the debt on the due date to avoid interest. Even leaving a balance of $1 will mean paying interest on your purchases so pay it IN FULL.

Why is it such a good tool for budgeting then?

By paying the account in full every month you can actually come off ahead. The reason for this is that you have put off paying for the items on the card, and in the meanwhile you may have kept the money earning interest in an interest bearing savings account, possibly for several weeks. This of course depends on the timing of your purchase and the due date of payment of your credit card bill. This advantage can even compensate for the annual credit card fees.

If the entire bill is not paid each month any grace period is gone and this means that you will be paying interest on new purchases from the day you make the purchase. Check the rules about grace periods (the interest free period) on your card.

Having a credit card means you need to be disciplined otherwise you can easily get into debt which has a nasty way of compounding and, before you know it, the debt has got out of hand. When you budget make sure that anything you put on credit card has been included in your budget so that you know the money is available for your spend.

One thing to be aware of is that the interest free period does not apply to cash advances so do not use your credit card to draw cash unless it has a credit balance. Only use the card for purchases of goods and services.

If you cannot use your card without abusing it leave it at home and find some other method of paying such as cash or debit card. Getting into debt is not worth having a credit card.