- 1). Gather all your bills together. Sort your bills to form three separate piles. Put your credit card bills in one pile. Put your utility bills, including cell phone and insurance bills (such as for home or car insurance) in the second pile. Put your bills for loans, such as car and house loans, in the third pile. Set aside the second and third piles.
- 2). Separate your credit cards into two piles: bank cards, such as Visa and Discover, and store cards. On a piece of paper, list all your bank cards. Next to each listing write the balance due and the interest rate. Do the same for the store credit cards on a separate sheet of paper. Set these two piles aside along with their corresponding lists.
- 3). Using a clean sheet of paper, list all your utility bills. Write the current amount due next to each one. Set this aside.Do the same for your loans; write in the monthly payments and include the interest rates on the list. Set this aside.
- 4). Add up the monthly cost of your utilities. Write the total on the sheet of paper. Do the same for your loans, adding up the monthly payments. These two numbers are essential monthly costs. You will need them to determine your expendable income amount.
- 5). Return to your credit card piles to determine which bank card has the lowest balance and which has the lowest interest rate. You are going to transfer the store card balances to the one with the lowest rate and pay off the one with the lowest balance first.
- 6). Because you need to determine how to fund the pay-off of your credit cards, you need to assess your income, your spending, and your essential costs. Create three columns on a piece of paper. Label the first column Income, the second Essential Costs, and the third column Spending. List your monthly income in the Income column. Take the combined figures from your utility costs and your loans and put that figure in Essential Costs. For the Spending column, take a few minutes to figure out your monthly costs for food, gasoline, clothing and incidentals such as Movie Night or the kids’ allowances. This figure need not be exact, but add 10% to your estimate to cover the things you didn’t think of.
- 7). Add together the two numbers from Essential Costs and Spending. If your income is higher than that number, the difference is expendable income and needs to be devoted entirely to paying down credit card debt. To increase your expendable income, you need to spend one month tracking all your expenditures aside from essential costs.
- 8). Place all of your lists in a notebook. During the next month, list all your monthly spending in a small notebook. At the end of the month, add up the costs and list that number beneath your original estimate. Chances are, you are spending more than you thought. Decide what can be cut to increase expendable income. Your goal is to increase your expendable income to allow you to pay off your credit cards by continually increasing the payments.
- 9). Look at your credit card list. Transfer your store credit card balances to the card with the lowest interest rate, and make note of the new balance.
- 10
Once you’ve established where you can cut your spending and what your actual expendable income is, you can budget it to pay off your credit cards. First, make the minimum payments on all the cards except the one with the lowest balance. Double or triple that minimum payment until the balance is paid off. Second, do the same for the next lowest balance and so on. By continually paying off the balances, you maintain your credit rating while getting out of debt. Track your credit card balances and payments on your credit card sheet. This will keep you focused on making payments. - 11
Continue to track your utility bills and spending costs, using your sheets to list the total monthly outflow. This will allow you to build a realistic budget. By tracking your monthly spending, you get an overall snapshot of where your money is going. By monitoring your utilities, you are able to determine how to modify your lifestyle to reduce those costs, thus increasing your expendable income. All expendable income needs to be devoted to paying down your credit cards. Continue to cut back to create expendable income. Because you may have improved your credit rating, you may be able to renegotiate interest rates on your credit cards. This results in your monthly payments having a bigger impact on reducing the balances due. You may also be able to renegotiate interest rates on other loans, thus increasing your expendable income.
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