Take Charge of Your Circumstances

When you have completed step one in this process, you may find you are spending a sizable proportion of your monthly income on your credit card debt. If this is the case, your first step should be to change that reality by lowering the amount you pay in interest rate.

Do you know what you are paying each month just to maintain your debt?

If not, take the time to find out.  Do it now. Resolve to do this before the first of next month.

Here’s How

Gather all your accounts and read the statements.  The numbers are there.  What percentage of your debt are you paying each month to avoid paying the amount in full?  To understand more about how your interest is calculated and what it is costing you just Google Understanding Credit Card Interest Rates.

I know, for some of you, when you set out to manage your financial reality and find yourself confronted with words like: annual rate, daily rate and average daily balance, your eyes will roll up in your head. You will be tempted to click away to Instagram but persist.  It’s your money!

Once you understand what you are looking at, sort your credit bills from the highest interest rate to the lowest interest rate.  You may have a student loan at a low rate and a department store bill at a very high rate.  Even if you owe more money on the student loan, start with the high rate department store bill.

Figure Out A Way to Pay It Off

This is where your daily latte might have to come into your office for a performance review. Ask yourself: What is this latte contributing to your overall circumstances? If you gave it up, temporarily, how might that effect your bottom line?

For Example

A Grande latte at Starbuck is $3.65.  If it is your daily practice to stop at Starbucks on you way to work, do the math.

5X $3.65 = $18.25 each week or $73 a month.

What if you applied that $73 to the principal on your highest interest rate bill?Of course, you will still need to pay the monthly interest charge you have been paying up to now but, by paying an additional$73 on the principal, you will slowly lower the amount you are paying each month since the interest is calculated as a percentage of the unpaid balance.

You can, with a bit more math, (check out this tool to save you the mental exercise) calculate exactly how long it will take you to pay off the balance if you add $73 each month to your payment.

Now, with a clear strategy to be rid of that monthly payment forever you have a goal!  A measurable goal.  This is not a resolution to do better, ora vague desire to spend less money. Instead of a vaguely self-judging resolution you now have a plan with a specific strategy and a measurable outcome.  Now you have an action plan for changing your circumstances.

Keep Going

Once you’ve rid yourself of that first bill, take the money you’ve been paying in interest on that first debt and add it to your $73 latte money. Then start the process over again with your next most expensive loan. Keep at it.  You can be debt free and then … imagine the possibilities.