So you're finally ready to be DEBT FREE and don't know where to begin? Been there...
I'm no "expert", but I do know what worked for us. Here are my 5 tips for getting out of debt, tried and tested by yours truly:
1. Get a No-Fee Credit Card
If you have a high-fee credit card, now would be the time to kick it to the curb. But what about the rewards? To be honest, the amount you're probably paying in interest far outweighs the rewards you're getting out of it. That "free" $600 flight isn't worth it when you've paid over $2,000 in interest. Now, I'm a reward junkie myself, and have found great credit cards that offer superb rewards on a no-fee card! Take this route. Getting that free flight is much sweeter when you've paid $0 in fees.
2. Use Your Credit Card for EVERYTHING
I'm a believer that this method works better than the "cash only" rule, and here's why.
If you want to use cash, go for it! But, you have to remember to write down every little thing that you purchased in a journal. From experience, I can tell you that there will probably be some slippage.
If you use your credit card for everything, here is the catch – you have to treat it like cash. Your credit card statement will simply record every detail down for you, instead of you logging it into a journal manually.
At the end of the month, take a few minutes and break your statement out into four categories: Home Ownership, Car Ownership, Needs, and Non-Essentials. When I did that, I found out a few staggering things. For example, I noticed that we spent way too much on gas. We were constantly driving OUT of the city to do something fun on the weekends instead of using our transit passes to do something fun IN the city. We've since changed that, and are now enjoying being tourists in our own city. For the longest time we avoided the city because we were country at heart, but we found some really great places within the city that appealed to our country-side.
3. Don't Carry a Balance
Don't charge your credit card if don't already have the dough to pay if off. There is no such thing as free money (thanks dad for that life lesson). Those nice credit card companies will let you pay later for that big screen TV, but at a 30% interest rate. All of a sudden, that great deal you got for $800 has now cost you $2,000 a few months later. Not a good deal anymore, eh?
4. Put 15% Down Each Month On Debt (and pay the highest interest rate first!)
If you can put more down, great! But don't stretch yourself too thin. If you stretch yourself by putting 25-30% down, and have no money leftover for entertainment, you'll burn yourself out and be miserable. You need to go out for those dinners, see a movie, and buy that bottle of wine to remember what you're working towards! Besides, starving yourself of fun will do nothing for your motivation. Just be reasonable with your entertainment fund (i.e. hitting your favourite sushi restaurant instead of the 5-star steak house). Save the "big treat" as your reward once your debt is paid off.
Money is the main reason why couples break-up. I love talking about money, but not everyone else does (that's probably why my husband calls me Spock). Money and debt can affect everyone differently. You may feel fine with all of this, but your partner may be losing sleep. Paying off debt is rewarding, but it's hard. It can take years to pay off, and it's challenging for some people to see the light at the end of the tunnel. Be open with your loved ones. Talk with your significant other if you're sharing funds and make sure you're on the same page. If the holidays drive fear in your wallet, be open with your family. Let them know that you're working hard to pay-off debt, and that you'll be making homemade gifts. Homemade jams are one of my favourite gifts to give, they're super easy to make, and are always well received. Besides, who needs another candle holder or photo frame anyways?