Being able to say that your debt free could be one of the best feelings of relief. Owing money to various institutions or people is such an oppressive feeling, especially if you are working hard to earn a living so that you could enjoy yourself and do things like take a week off from work, go out to eat with friends or travel our friends or travel.
There was a time where I was guilty of this and I definitely learned from it and understand the value having a good credit score. The key to being debt free is being financially responsible and while it’s true that it is common knowledge, sometimes you just have to put things into perspective. And trust me, I have been there, I’ve been in debt, enough for me to lose sleep over and let me tell you, I value my sleep.
How to Get Out of Credit Card Debt
First and foremost, you need an income. Look on Craigslist, Indeed.com, ask friends and family for referrals if you are having a hard time finding a job. You would be surprised as to how well connected some people in your life are and if you mention that you are looking for a job they might put out a good word for you. Ideally, you would want a job that’s significantly more than minimum wage because face it, that is not a living wage.
One thing that I cannot understand is people who live at home with their family and have a job, aren’t in school, don’t pay rent yet, don’t pay for their cell phones, or have a car payment, but they’re always eating up overdraft fees. Now that I think of it, I know a few people like this. If this is you, and you’re in debt, your entire paycheck should go towards paying off your whatever you owe! Living with family without any expenses is the prime time to start saving money and contributing to household expenses. Take advantage of the opportunity because it will not last forever.
When you’re ready to get rid of debt, start by making a list of all the credit cards you have a balance on. Write down how much you for each one, and how much interest you are paying every month. One thing that I suggest is to pay off the one with the largest balance off as quickly as possible while of course still paying all other bills on time.
Healthy Habit: Create a budget by making a list of all of your monthly expenses. In that, include money you spend to go out, gas, food, as all of your bills.
You never want to miss a payment for a couple of reasons. Not only does the bank tack on a missed payment fee, but it will hurt your credit score. With that said, 15% of your leftover income should be going to paying off your credit card. Left over income meaning, once you pay off all of your monthly expenses, how much are you left with? Whether it’s $100 or $400, 15% of that is a reasonable amount to put towards your debt. Spreading that out for more than one credit card would be making that amount so much more thin which is why I believe in paying off your largest balance first.
Healthy Habit: Organize all of your credit card bills on a calendar and refer back to it often so you never miss a due date!
Can you do it? Yes, of course you can. Instead of buying coffee, a few times a week or eating out with a friend, pay your bills! And ladies, that means you may want to hold off on the mani and pedi until you have things settled.
Healthy habit: Spend less on little commodities like vanilla latte which adds up over time.
Think about it, you are messing with your credit score when you carry debt around which may be what stops you from getting a car loan or an apartment to rent. It’s what people who sell you big things look at to determine whether you can afford it. So take care of your debt!
One thing to understand is that having a credit cards does not mean free money. You should only use a credit card to purchase something you can afford to buy that month and not tell yourself that you will pay it off later which is how it is so easy for your balance to add up so quickly. A charge here, a charge there and the next thing you know you’ve spent more than you make in a month.
Healthy Habit: Use a credit card only for purchases you could afford to pay for cash if you did not have a credit card.
One reason you do not want to carry a balance every month is to avoid paying interest fees. If your interest fees are making it difficult for your to pay your statement off, call your bank and explain your situation and they may be able to bring down your percentage.
If you have a credit card account that has been sent to collections, you can call the collection’s agency and work out a deal like cutting off a lot of the interest rates that you have been charged and figure out a payment plan that is easier for your to work with.
How Does Debt Affect your Credit?
Everyone’s credit score is calculated with a secret formula that the general public only vaguely know. We do know that there are five factors that make up your credit score: payment history, amounts owed, length of credit history, new credit, types of credit used. In calculating your score, the greatest emphasis is on how much you owe and your payment history, so the more money you owe in total and whether you make your payments on time is essential to having a good credit score.
A great credit score to have is 720 and above, and if you have anything less than that you can monitor your credit score to see what areas you need to work on. As you start to pay off your debt, you will see your score improving over time. I like to use Credit Sesame to monitor my credit history because it gives you updates of your score regularly and for free without dinging your credit score.
Here is how the score are generally scaled by credit bureaus:
Excellent credit score: 720 and Up
Good credit score: 680 to 719
Average credit score: 620 to 679
Poor credit score: 580 to 619
Bad credit score: 500 to 579
There are 5 basic rules to help improve your credit score and number 1 is to clear your debt. Number 2 is to apply for credit and while this article is about hot to get out of credit card debt, it’s important to understand that credit cards are not your enemy. Once you have cleared your debt and manage your accounts responsibly, you can start maintaining credit accounts. The other rules are to never carry a balance, always pay on time and keep your oldest accounts open to lengthen the age of your credit history. For more tips about how to improve your credit score, please read 5 Easy Ways to Improve your Credit Score.
Quick Recap
It’s important to remember that credit cards are not your enemy, but that it’s also not a ticket to a free shopping spree. Maintaining a great credit card history can actually open a lot of doors especially if you apply for the right credit cards for example, ones that offer frequent flyer miles or cash-back bonuses. A few things to remember are to pay your balance off in full every month, to never miss a payment and to not buy things you can’t actually afford. Being responsible with your cards and having a high credit score can lead to great opportunities, like using airline miles to backpack across Europe or Southeast Asia. Whatever your goals are, starting off debt free is one of the best starting points.
If you enjoyed this post, why don’t you follow Adrift Anywhere on Facebook or subscribe to get updates on budgeting tips, travel advice and tips!