Debt can be your best friend or your worst enemy. If used in a positive way debt can help you buy a home, get an education and afford your once in a lifetime vacation. However if misused debt can cost thousands of dollars in interest payments, cause emotional and mental stress as well as completely devastate your financial future. If you’ve ever swiped your credit card or signed on the dotted line you know this to be true.
Truth be told this was once my reality. Thanks to student loans, a new car loan and four different credit cards I ended up over $50,000 in debt in my 20s. I knew I hit a financial rock bottom when I could no longer afford to pay all my bills and my rent in the same month. I knew I had to make changes to my money habits and turn over a new financial leaf – so that’s what I did.
If I looked in the mirror back then I wouldn’t even know myself now because now I live a financially responsible life with low credit card balances, a savings account and a high credit score. At 34 years old I’m the complete opposite of my 20 year old self and this is how I did it.
3 steps to get your debt in order
1. Keep the essentials, cut everything else.
When I hit financial rock bottom I knew things had to change. My biggest expense was my $1300 a month rent in my fully equipped luxury downtown apartment. I moved to a cheaper apartment in a less convenient neighborhood about twenty minutes outside of downtown. I didn’t have all the amenities I used to, but I cut my rent payment almost in half.
Then I sold my car. That was the biggest blow to my ego because my car was the first real thing I ever bought. I felt defeated but I had to put personal feelings aside because it was a major monthly expense and it had to go.
2. Call your credit card companies.
When I couldn’t afford to make the minimum monthly payments on my credit cards I considered bankruptcy but decided it wasn’t the way to go. I got myself into this big debt mess and I wanted to get myself out of it.
I called my credit card companies and begged and pleaded with them to help find a solution. Two of the four were understanding and lowered my interest rate to 10% from 19.99%, one lowered my interest rate to 0% but set up automatic biweekly repayments and the fourth didn’t care. Having a lower interest rate and setting up automatic payments really helped pay off my credit card balances sooner
3. Increase your income.
I cut my expenses and lowered my interest rates, but it wasn’t enough. I needed more income to make bigger payments on my credit cards – so I got a second and then a third job. I thought working 60+ hours a week would only be a temporary situation, but even after my debt was paid off I kept my second job because I’m addicted to the money.
Instead of using my extra income to pay off debt now I use it to travel or put it towards my savings. Trust me when I say watching my savings account grow is almost as fulfilling and addictive as watching the balances on my credit cards get lower.
Tahnya Kristina is a personal finance blogger and Certified Financial Planner. She enjoys helping people land their dream job, achieve financial success and find personal happiness. Say hi anytime www.twitter.com/tahnyakristina
