Happy New Year!

A brand new year, a brand new slate for new goals and new beginnings.  One of the most common New Year’s resolutions is to lose weight.  I am going to guess that this year the resolution to get out of credit card debts probably outnumber that one.

Personal finance expert, Carrie Schwab-Pomerantz, of Charles Schwab says getting out of credit card debt is one of the more daunting financial challenges and will take time.  You’ll need determination, perseverance and discipline.  Here are the five steps she offers:

First: Stop using your cards.  Use cash or checks instead.  This will slow down the growth of your debt and it should help curb your spending in general.

Second: Create a realistic budget.  There are two broad expense categories: (1)  your basic fixed costs, including rent or mortgage payments, car payments, utilities and groceries, and (2) discretionary expenses, like eating out, travel, clothes, and entertainment.  You could try to change your fixed expenses (move to a cheaper living situation, for example), but probably most of your free cash will come from reducing discretionary spending.

Third: Don’t forgo savings.  Although your priority is to reduce debt, you should make savings a part of your budget now, even while you still carry balances on your cards. Having money in the bank is invaluable for emergencies and is psychologically reassuring.
You need (1) an emergency fund of three to six months’ worth of expenses in case something truly horrible happens, like you can’t work for a few months, and (2) some retirement investing, preferably through an automatic payroll deduction into a tax-advantaged 401(k) plan, and at least enough to capture an employer match.

Fourth: Decide which cards to pay off first.  It makes sense to pay off the highest rate cards first, so make sure you understand the terms for each of your cards. You might also see if it’s possible to consolidate one or more balances onto another, lower rate card. Card companies routinely offer the chance to transfer balances, sometimes with very low teaser rates, which could result in real savings in terms of your total interest expense and could accelerate your progress in getting debt free. (If you do a balance transfer, take note of any fees that might be imposed.)

Fifth: Commit to a payoff schedule.  Pay the minimum payments for your lower-rate cards and apply the rest to the highest-rate card. When that one’s paid off, move to the next highest rate card.  There is a Credit Card Payoff Calculator on the Schwab website that will tell you how many months it will take to pay down your debts.   Pay at least the minimum and never be late. Credit card companies can impose substantial fees on late payments, and you could damage your credit rating.

To read Carrie Schwab-Pomerantz’ original article, please go to http://cot.ag/yGfiiM.


About lilynyland

Former Realtor at Coldwell Banker George Realty in Alhambra, California. Graduate Realtor Institute (GRI), Accredited Distress Property Specialist (ADPS), Short Sale & Foreclosure Resource (SFR).
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