Breaking Free from the Shackles of Revolving Debt

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The going was good in maintaining multiple card balances. People were getting by with minimum payments and credit card companies were happy with the spurt in business. Nobody was bothered with erasing debt. The problems began when expenses connected with a job change or a city move ballooned or a home repair or car overhaul created an additional demand on finances. Suddenly people were left with big balances that simply refused to go away. People got caught in a debt trap of their own making. It is high time we changed our spending behavior and rectified the situation.

Here is an action plan that really works

  • Tuck away all the credit cards barring one that can be used for domestic expenses and this card should be used sparingly and repaid in full.
  • Transfer the remaining card balances to a lower interest card. You can shift the major portion of the outstanding to a card carrying a fixed (lower) rate for its full period, and shift the remaining balance to a card with a much lower rate that is being offered for a limited period.
  • Put in overtime and increase income through part time work. The purpose of working a bit extra is to generate as much money as possible to cope with extra expenses and to pay off the debt in installments.
  • Be smart about entertainment options; substitute dine-outs with nutritious homemade meals, replace theater with rented movies, cut the cable and move online. Drop the newspaper for online versions.

Moving out of debt requires behavioral adjustments, changing spending habits and curtailing wasteful expenditure that requires all family members to contribute to its success.

  • Accept the challenge

Total your entire credit card debt and take stock of your income from all sources. Next track all your expenses and see how much you can mobilize for card payments. Initially be low profile and just concentrate on meeting the minimum balance but adding a little extra money. Continuing this for a long period will see you bringing down the balances.

  • A savings account is vital

If you open a bank savings account you can divert all your birthday checks, gift checks, bonuses and raises and income tax refunds into that account. To this amount add at least 10% of your paycheck as a compulsory contribution and stick to this pattern no matter what happens. You will be surprised how quickly you will be accumulating emergency cash for monthly expenses. Use this money wisely to service the debt.

  • Curtailing expenses sensibly

It is possible to bring down expenses simply by being more sensible. Avoid window shopping and do all purchasing only from a list and only against budgeted expenditure. Rack your brain for reducing expenses in every single activity. A packed lunch can help you avoid an expensive meal, following the car maintenance manual will reduce repairs, becoming busy around the home will cut expenses for professional maintenance.

  • Tackle debts in a revolving manner

Once you accumulate sufficient savings focus on tackling the debt in stages focusing on the low interest balances first. When you do this you create a surplus and the same installments can then be diverted to the next higher interest outstanding.

  • Look to augment income every way you can

Explore avenues to do overtime in your existing job or look for extra income through freelance work. Get your family members to chip in. Every extra dollar helps reduce the debt mountain. Re-examine your withholdings on your W-4 return and don’t spend a dollar from all the windfalls you get, including the tax refunds. Earmark this money only for debt servicing

Grab a vehicle title loan to consolidate bad loans

The loan for vehicle title releases more than 60% of your car resale value, and that represents cash which will be immensely useful in closing at least the smaller debts and credit card balances. The auto collateral loan works on the basis of the collateral of your pink slip and charges a reasonable 25% APR that is often lower than many credit cards. The auto equity loan can be repaid in smaller installments and such repayments will not stress the domestic budget.

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