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High debt - middle income.
By Adam | October 27, 2006
Escape the so-so income, high debt trap
 Dear Debt Adviser,
I am in a lot of debt. I make $40,000 a year and have $16,000 in
unsecured debt. I am slowly trying to pay off credit cards and then
close them. I tend to find myself making large payments on the credit
cards, but then needing to use them because I don’t have enough cash on
hand. I know I need to pay them off, but using them again because I
need them is defeating my purpose. What should I do?
Dear Elaine, You are truly a lady on a mission!
First, let me congratulate you on your resolve to pay off your credit card debt.
I hear the frustration in your letter and believe I can help.
You are doing most things right in your efforts to pay off your debt.
From what you have written, it seems you do not have a firm grasp on your total monthly expenses.
The result is that you pay more than you can actually afford toward your card balances only to have to cover the shortfall later.
That is where you need to start.
You can put together a budget, which is always a good exercise, or in your case you might try a shortcut as you seem to be more mistiming expenses rather than overspending.
Here’s the plan: For two months, pay your normal expenses and only pay the minimum payments on your cards.
Save all the money leftover from your paychecks in a separate account if you have one, or record the balance separately from the rest of your money in your check register.
Now you can clearly see what you can afford to pay on your cards beyond the minimum.
If there is little or no money accumulating in your separate account, then you will need to take a hard look at what you purchased and decide if those purchases are more important to you than paying off your debt.
In either case I suggest you stop spending, using the cards, and use cash, checks or debit cards as much as possible.
Put most of your available money each month toward the lowest balance card and pay it off quickly.
You will see progress as the number of cards with balances goes down.
Or choose the card with the highest interest rate, regardless of balance, and pay it off first.
You will see your interest rate savings accrue over time and more and more money will go to principal payments.
A Bankrate feature called “Debt payment push” and the accompanying debt payment work sheet explain further.
Whichever method you choose, make sure you pay at least the minimum due on your other cards if you decide to put the majority of your money toward one card.
A final suggestion is to not close the cards once you have paid them off.
Once you have a better handle on your actual monthly expenses, paying off your debt will go much smoother.
As long as you move forward and are committed to paying off the debt, a small occasional addition to your balances will not affect your goal of paying off all credit card debt that much.
-Adam
Escape the so-so income, high debt trap (Bankrate.com via Yahoo! Finance)
Budgeting, watching spending and attacking the debt aggressively are the best ways to get off the credit card debt treadmill, says the Debt Adviser.
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Topics: Credit Repair, Personal Finance |