Monday, August 23, 2010

Piggy Bank debt reduction plan

The other day at work a coworker told me she heard I was the guy to talk to about getting out of debt and asked for ideas. So I took a few minutes asking her some questions and determined a few things. All of her debt except a car loan was credit card debt hitting just under twenty five thousand.

So here is what I told her, I call it the Piggy Bank debt reduction plan.

Step 1 reality check: Gather up all credit card bills and statements and figure out just how much debt you really have. Put the credit card bills in order from highest interest rate to lowest interest rate.

Step 2 start making calls: Call up each credit card company and ask for a interest rate reduction. This is a company who makes money off of your interest and they are going to be resistant to do this. However be firm, if asking doesn't work then threaten to transfer the balance to another card if they do not give you a better interest rate. Repeat this step once a year, its amazing to see how much lower they will let the rate go before giving up on making money off of your interest.

Step 3 balance transfers: After asking for the rate reductions its time to do your best to transfer the balance from the card with the highest interest rate to your other cards. Preferably your card with the lowest interest rate. If the available credit limit on the card with the lowest rate is not high enough ask that company to increase your limit. Explain to them what you are trying to do and that they will be the ones making the money off of your increased debt.

Step 4 quick success: Paying back debt is a long discouraging process so any amount of success is great. I suggest choosing a card with a high interest rate but a low balance and start paying it off with any extra cash you have each month. As soon as that card is paid off put that money towards the card with the highest interest rate.

Step 5 payback: It is imperative that you make all of your minimum payments so that you are not getting hit with late fees. Then with any leftover cash you have that month put it towards the card with the highest interest rate.

Step 6 leverage: In my friends case they had a fair amount of debt with their car loan. My first suggestion was to sell the car and get a cheaper car so that the payment each month would be less. Opening up a few hundred dollars that could be put towards paying of credit card debt. However in her case selling the car was not an option so I suggested she leverage it. Head to the bank and take out a personal loan with the car as the collateral. The money from the personal loan should be put towards paying off debt. The interest rate on the personal loan should be lower than the interest on the credit card. Freeing up extra money that would be going towards interest and can now be put towards paying off the card with the highest interest rate.

Step 7 creativity: Its time to get creative with your money. Making more money is not an easy thing to do which is what makes paying off debt so hard. But finding creative ways to cut back is easier. If you have any monthly subscriptions (Gym, Netflix, clubs) put those on hold. Use the freed up cash towards paying off debt. Host a garage or bake sell on the weekend and use the proceeds to pay off the debt.

I hope to update you on her progress. Paying off debt is a long and strenuous task and can take many years. However the feeling of being debt free is incredible.

I would like to hear your debt story. What are you doing to get out of debt? How is your debt repayment plan?

Monday, August 9, 2010

Hip to save

It is hip to save, using coupons is becoming a national past time and well it should be. Whether we are in time of feast or famine saving money is always hip. As mentioned in earlier posts my wife and I have been doing our best to collect and use coupons on as many products as possible. (however we only use them on products we actually need. Buying something we don't need for a reduced priced isn't saving) Here is a site that we have found to be very helpful.

Are you using coupons? What have you found to be the most worth while?