Getting out of debt is like attempting to losing weight.  It’s easy to gain, impossible to lose!

Ever wonder why that is? Why the very system we rely on for our financial security is designed to take advantage of unsuspecting Americans?

I have a philosophy, but this post isn’t about that. All we can do right now is make ourselves mindful of the system. Education ourselves on how it works and use it to our advantage.

1.       Pay off the card with the highest interest first

a.       Interest rates are a reflection of how much you have to pay for the money you borrowed. It’s important to pay off the high interest first

  i.      One exception. A very, very low balance.  If you have an account with a low balance and low interest rate, go ahead and pay it off.  It’s easier to get it paid and out of the way.  In doing so, you also free up money to put toward another credit card.

b.      Failing to pay off the highest interest rates first, cost you more money.  The reason is because you shouldn’t pay off something with a lower interest rate, only to keep paying a higher interest rate on another account.  Even though you are paying one down, you are extending the amount of time you pay the higher interest rate.

2.       Do not close the accounts

a.       Credit is measured on more than your ability to pay

b.      You credit score takes into account how long you’ve had your accounts.  The longer the better

c.       If you start closing accounts you’ve had for a long time, you will actually hurt your credit.

d.      Pay off cards, but keep them open.  Keep the card in a safe place where you will not be tempted to use it.  Eventually the company will close the card themselves if you do not use it.  Waiting and allowing the company to close the account is far more favorable for two reasons.

i.      First, if you close the account, it appears as if you can’t handle the credit. It gives the appearance of not being able to handle the credit. True or not, it’s an assumption on the credit bureaus part. Regardless, it will lower your score.

ii.      Second, if you leave the accounts open, you have credit you don’t need. By leaving the accounts open regardless of not having intent on using them, you show the credit bureau you don’t need the credit.  It shows them you not only don’t need extended credit, but you are also living within you means.  For that, you are rewarded with your credit score.

3.       If any cards have defaulted payments, get them current

a.       Before attempting to eliminate debt, ensure any and all debts are paid on time.

b.      Eliminating late fees will significantly save you money

c.       Nothing hurts your credit worse than late payments.  Generally speaking, companies report payments as late after 30 days.

i.      Making late payments tells the credit bureau you’ve over extended yourself. The level of credit you have is too much.  Of course, this will ruin your credit. First and foremost, get those payments made on time.

d.      Once all of your loans are paid on time, start working on paying down your debt.

4.       Organize all of your bills

a.       Start with getting a copy of all your bills together. If you need a budget tracker, just comment below. I have one to send you.

b.      Organize your bills by due dates and payment amounts.

c.       Get ahold of what money is coming in, and how much is going out.

d.      Figure out pay dates. Pay your bills first, then figure out how much excess funds you have for fun money.

5.       Consolidate your bills

A man cutting up credit cards

a.       Keeping track of several bills is daunting.

b.      Try to obtain a consolidation loan.  This will provide you with one bill, one due date.

c.       After consolidating, you may notice your credit goes down … a tiny bit.  Don’t fret. After a few on time payments, you will see your score recovering.

d.      I don’t recommend going to a company to pay off debt. One it will cost you money to do so, and two you can do it yourself.

Final Thoughts

Getting into debt is much easier than getting out.  Over and over again we get frustrated at the feeling on never seeming to accomplish what we need to when it comes to finances.  As a result we buy more things. Often with credit, ultimately making the situation worse.

Slowing make changes to improve your credit. True faster the better, but do only what you can.  Rushing yourself or taking on too much will leave you with a different set of issues.  Slow and steady win the race.

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