24-Hour Debt Reduction Plan
A 24-hour debt-reduction plan
Get the ball rolling
One thing to do immediately is to identify the card you can pay off the fastest. Put all your efforts toward paying down that card in, say, three to six months. Harness that momentum, plus the funds you used to pay off Debt A, and you can quickly target and destroy Debt B, then C and so on.
Formulate your plan
The average American household with at least one credit card last year carried an average of about $8,000 in credit-card debt. How quickly could the Average American eliminate that burden? How quickly could you? You won't know until you have a plan of action. First, have a little one-to-one chat with your debt. Get to know it. How big is it? How much interest does this card carry versus that one? Then decide how quickly you want to pay it all back. Divide the amount you owe by the number of months from now in which you plan to be debtless. For example, you would have to pay $333 per hour to banish the Average American $8,000 load under the ideal 24-hour plan. Or you could pay $444 a month for 18 months, whichever is easier. The point is, debt is like quicksand: Struggling and complaining won't get you anywhere, but a simple strategy will.
Don't fool yourself
The amount of so-called financial advice being tossed around these days is disheartening to those who labor in the debt trenches. The biggest sources of financial fog are these two bright ideas:
”I’ll make more money later, and I’ll pay for it then.”
”I can always cut back on my expenses.”
Typically, neither of these things ever happens. You may make more money “later,” but by then your expenses will have increased. And cutting back is simply wishful thinking. The little-known Newtonian law of debt conservation states that money saved in one area will inevitably be spent in another. Instead, adopt the Debt Reduction Mentality: The only way to truly get medieval on your debt is to spend less than you bring in. Period. Starting now.
Or, as a wise person once said, “If you don’t have the money to buy it, don’t buy it.” That’s a major change from “I can pay for this $1,200 suit once my promotion goes through,” and it's guaranteed to change your financial life.
Cut fixed expenses
It’s easy to say “spend less than you bring in,” but few people really know what that means. Aside from the obvious (i.e. figuring out what you earn and spending less than that), what it means is cutting your fixed overhead. Cut cable. Give up the cell phone. Don’t eat out. Bring lunch. Taken to the extreme this might include avoiding TV, magazines and newspapers, so that you’re not tempted to make unnecessary purchases.
Those may seem like small savings, but they add up quickly. And when you start putting that money toward reducing what you owe, that satisfaction will more than compensate you for the loss of HBO. Think about it.
Negotiate, negotiate, negotiate
Rather than pay exorbitant credit-card interest rates -- which keep you in debt indefinitely -- you can make an immediate dent in your debt by calling your credit-card companies today, telling them that you’re planning to move your money to another company with a lower rate, and then let them woo you back with lower rates. Little known fact: Most customer service representatives are authorized to lower your interest rate significantly. Not only that, but you can call back a month later and do it again. Don’t believe me? Try it!
You can do the same with that annual, so-called “membership fee,” although cards that offer frequent-flier miles may not be as flexible.
Consolidate, consolidate, consolidate
There’s a stigma attached to credit counseling and debt consolidation services, but sometimes that’s your best option.
Debt consolidation is tricky. Putting all your credit-card debt onto one card with a seductively low rate sounds like a good idea, but you need to ask about hidden fees and how long that low, low rate will last. You don’t want to get stuck paying an even higher rate down the road.
Likewise, getting a consolidation loan can turn out to be more expensive than if you’d paid your debt yourself. And some services have been known to make late payments, thus hardly doing you a favor.
Nonprofit services like National Foundation for Consumer Credit or Consumer Credit Counseling Service tend to be more reliable. The advantage of these services goes beyond the organizational helping hand they extend. Making only one payment per month, as opposed to three or four or more, will save you those excess membership fees and the inevitable late payments that come from juggling too much. Will using these services show up on your credit report? In some cases it will, so make sure to ask.
These six steps may seem simple -- you can probably accomplish all of them during your lunch break -- but sometimes easy actually does it.
