If you are smart, you already have your credit cards put away somewhere and have quit using them. If you have not stored the credit cards somewhere yet, put the book down, find a safe place for them and do it now. Do not destroy the credit cards. You will need them sometime in the near future.
Go through all of your credit cards, your bills, your statements and your contracts. Some of them may be fixed interest rates and some of them may be based on variable interest rates. It is important to examine each and every one very closely and see which ones you are paying the highest interest rates on.
Once you have discovered which one charges the highest interest rate, put that one aside. Go through all of the other bills and see what the minimal payments will be like as you pay them off. Then, examine your budget closely and realistically and figure out exactly how much money you have to pay off those debts.
Pay the minimal balances on all of the other cards that you have outstanding balances on. Paying the minimal amount will keep your credit in order while you go about getting out of the pile of bills you are suffering through. Your credit will be very important not only in managing debt, but in all aspects of your life.
Pay the remainder of your spending budget on the one card that charges you the highest interest rate. The minimal balance due is usually just the interest that the company is charging, or their personal profit margin from you, their consumer. This is where and how they make a profit so none of your card companies will be very likely to cancel any of your cards or put your credit in further disrepair.
The remainder of money that you have budgeted should allow you to pay the interest on the most costly card while also paying off a portion of the principal of the loan as well. The principal amount is actually the money that you have spent on goods or services. The interest you pay will be based on the principal amount of the loan to you.
Paying off some of the principal amount will lower your interest payments, allowing you to pay off the loan much quicker as you will actually be paying less interest and more on the principal as you continue making these payments in this method. In the meantime, you continue to make money for the other credit card companies and they continue to be relatively happy with you.
Once you have paid off the most expensive card, you will see why it is wise to have kept it. Debt management involves more than just resolving debt. It is actually a very small portion of your overall financial situation and all of the plans you have for the future depend on being able to actually manage your debt properly and creating good debt.
After the balance on your most expensive card is paid off, go through all of your credit card statements and figure out which remaining card is now costing you the most money. Begin the process over again making the minimal payments on your other cards while you continue to reduce your debt.
Try and remember where you hid all of your credit cards and examine the card you just paid off very closely. Bear in mind the relief you felt when you paid it off in full and think about all the tribulations you suffered due to having utilized it to its maximum allowable amount.
If you have self-control, you can go ahead and put that one back in your wallet or your purse or any other place you keep it when you carry it with you. If you are concerned that you will use it unwisely again, keep it wherever it is stored. If you have small regular purchases that you normally make with cash or checks, this is the best use for your renewed card.
Since this is money you are spending anyhow, it is not an added burden to your monthly bills. The only difference will be in how you are paying them off. Now, instead of using cash or checks to pay off these bills, use the credit card to make these purchases. Do not use that credit card for other purposes or for any impulse buys that you “just can’t live without.” This will lead you right back down the path you are trying to get out of.
It is important to remember not to add the money you normally use to pay these bills to the other amounts in your budget. Even if it is cash you have in your pocket, it will be up to you to save it and not use it for any other purposes. This money still has to be used to pay the same bills; it is only being paid by a different method now.
When your credit card bills begin arriving, you should be familiar with the routine now. Pay off the minimal balance on the less expensive cards and pay off the remaining amount you have on the most expensive credit card. Do not use the money you saved by paying the other bill with the credit card.
No matter how you saved that money, whether in a bank or in your pocket, you should still have the money you set aside and saved when you paid that bill or those bills with your renewed credit card. When you get that credit card, you may notice something that you have not seen before.
You will find that the actual balance is either exactly the same as the cash you saved and the bill you paid with that card or with some companies, you may find a very small fee attached. Pay that debt-balance off in full with the money you have saved. This will result in many benefits which will be discussed later in this book.