When Miranda Marquit started writing about personal finance six years ago, she “was maxed out on my credit cards,” she admits. No more. And the publisher of Planting Money Seeds has a few words of hard-earned advice for anyone who has dug themselves into a debt hole so big they think they’ll never climb out.
First, decide that it’s a priority. “Don’t just say, ‘I’ve got to pay down this debt.’ You have to [make it] important in your life.” If you have a partner, you need to get him or her on board. And you have to believe it will improve your life, she says. Motivation is everything.
Second, identify “wants” versus “needs.” “Anyone can run into an unexpected medical bill or a job loss. But we’re talking about everyday spending habits.” Do you need a smartphone and a $100-a-month data plan? Do you need a big-screen TV? “I don’t have a smartphone because I don’t need it, and I have an old 32-inch TV, because I rarely watch it,” she says. “We have an inflated idea of what we really need.” She’d rather go out to dinner a few times a week than have a TV in every room, and now that she’s paid down her debt, she can do just that. Once you’ve brutally assessed which is which, you can change your spending habits, she says.
Third, track your spending. For a couple of months, keep track of how much you spend on various things. Do you spend a lot on “wants” and could you eliminate some of those things from your budget? Once you find where you are wasting money, you might stop spending on that STARZ deluxe package on cable and put that money toward your monthly debt.
Finally, pick your poison. There are several approaches to paying down debt, she says. You can take the approach of financial guru Dave Ramsey, called the “snowball” approach, and pay off the smallest bill first to give yourself momentum. Or you can take the “debt avalanche” approach recommended by Luke Landes at Consumerism Commentary. Marquit prefers this method because it saves you more money. Take the card with the highest interest rate and pay it off first. (Keep making at least minimum payments on other cards.) You won’t see the results as quickly, but eventually you gain momentum. Say you’re paying off $200 a month on that first card. When that debt is gone, you have that $200 to put on the next card, on top of the minimum payment you were making. And so on.
Whichever approach you take, “you must be committed to doing this,” Marquit says. “And once you get your debt paid off, be smart. Don’t charge things you can’t pay off at the end of the month, or at least very quickly.” And if all else fails, “find another source of income – a part time job, if you must.”
Miranda Marquit is a professional personal finance journalist. She is a contributor for several personal finance websites. Her work has been mentioned in USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and U.S. News & World Report. She addresses a multitude of topics on her own personal finance blog: Planting Money Seeds.
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