Archive for the 'Debt' Category

This is a very timely post for me, since I’ve been sick for over a week now. Luckily I didn’t miss any work this time, but it has happened before. Bad things happen to good people. It’s important that you prepare now.

The most common excuse for carrying credit cards is “What about emergencies!” I’ve already shared my thoughts on this once, but it bears repeating. Your debt is an emergeny and using credit cards only makes it worse.

I think it’s important to first define exactly what an emergency really is. Once you’ve done that it will be easier to find ways to deal with those emergencies without resorting to credit cards.

There are basically only three things that a person needs to survive — health, transportation, and shelter. In other words, you need to be able to work, have a way to get to work, and have a place to go when you get off work. Beyond that, most things are more wants than needs.

A new car is not an emergency. Neither is a new CD or DVD. New clothes or shoes are not emergencies, unless your current clothes are so worn out you can’t wear them to work.

As long as you’re in debt, you need to ask yourself “Will buying this help me pay off my debt?” If the answer is no, then you probably don’t really need it right now and you certainly don’t need to charge it.

Here are a few ways to deal with real emergencies without having to resort to more debt.

Insurance

Problems with your health definitely classify as emergencies. If you don’t already have health insurance, you need to find a way to work it into your expenses as soon as possible.

Next, look into life insurance and disability insurance. Term life insurance is very affordable. Don’t leave behind a lot of bills for your family to take care of if the worst should happen to you.

Disability insurance is needed in case you’re ever unable to work. It will help pay your bills when you’re not able to pay them yourself.

Also, if you’re renting look into renters insurance. It’s usually reasonably affordable and will protect your possesions from things like fire or theft.

No one thinks insurance is very important until they need it.

Savings

You need to have some money in the bank for things that aren’t covered by insurance. If you’re in a car accident, your insurance will pay to have it repaired. If your car just breaks down, you’re out of luck.

Think of this money as a “cushion” between you and the rest of the world. Sometimes you will fall down, but this should be enought to keep you from hurting yourself.

Everyone always wants to know how much they should have in an emergency savings account. The trouble is different people have different needs. Anything is better than nothing. So if you don’t have a savings account, now is a good time to set one up.

I would try to save at least one month’s worth of bills as quickly as possible. This should be enough to keep you going no matter what happens.

I talked a few days ago about my favorite online savings account. Go back and read that post if you need some help setting up an account.

Barter

I saved my favorite way of dealing with emergencies for last. If you have a useful skill to offer someone, then bring it up when it comes time to pay your bill.

I’ve bartered with everyone from accountants to mechanics. They provide a service for me and I return the favor. In my case I work on computers, but I know other people who trade services like carpentry, painting, and even house cleaning.

I’ve also worked on people’s computers in exchange for food. I’ve been paid with everything from fresh vegetables to fresh fish. I’ve also had a few people prepare meals for me.

My family always jokes about washing the dishes at a restaurant to pay the bill. I’ve never actually done that before, but if I was hungry and broke I might ask the owner if that was an option.

The most important thing to remember is this: Now that you’ve committed yourself to getting out of debt, make sure that nothing can stop you. Obstacles will arise so be prepared to overcome them without bringing on more debt. Never charge again.

I paid off a credit card tonight. I didn’t transfer part of the balance to another card and then pay off the rest. I paid it all off. In cash.

I just completed the online bill payment for almost $900 and it felt great. It has taken me months to get the balance down this low, but it was worth it. This means one less bill to pay for the rest of my life.

Once you’re committed to paying off your debt, it’s important to keep the end result in mind. Sometimes it seems like it will never happen, but I can promise you it will.

Think about how long it took to run up the balance on the card. It may take even longer to pay it off since the bank has interest on their side, but you will get it paid off.

As long as you never charge again, you’re in control. As you start paying down the balance, the bank might try to tempt you with things like a higher limit or special interest rates, but don’t give in.

Higher limits only lead to higher payments and special interest rates always end. There’s nothing that any bank can do to change my mind. No matter how enticing they try to make it sound, the only real purpose of a credit card is to make the bank rich.

The only real “no hassle” credit card is one with a zero balance. It makes me very happy to know that Capital One will never be able to hassle me again.

Now if you’ll excuse me, I’m going to go celebrate…

This is the last part of the plan. So far you’ve committed yourself to never charging again, and you’ve calculated your monthly income and expenses.

Now let’s talk about ways to increase your income. For most people this is a pretty hard thing to do. You’re probably already working at the best job you can get.

You could take on a second job, but that would mean basically no free time. Besides, most jobs that you could do in the evening and on weekends don’t pay very well.

What you really need to do is to find a way to make money without having to work for someone else. This is the American dream, the key to your financial freedom.

I figured out several ways to make money by brainstorming and writing things down on three lists:

1. What makes you happy?
2. What are you good at?
3. What will people pay you to do?

Get out some paper and spend some time adding things to these lists. What you’re looking for are things that appear on all three. I’ve put a lot of thought into each of these, and it’s had a big impact on my life.

Here are some examples of thing from my lists:

• I’m good at working on computers and people will pay me to do it, but it doesn’t make me happy. I used to work on computers quite a bit because I needed the money, but I was usually miserable doing it. That’s actually one of the reasons I started looking for other ways to make money.
• Playing guitar makes me happy and people would pay me to play, but I’m not very good at it. I know if I really needed to I could spend some time practicing and probably get paid to play in clubs, but for now I’ll stick to other ways.
• I’ve always enjoyed writing. When I was in school, several of my teachers told me I was pretty good at it. I know that if I write good content people will continue to come to this website and I will make a little extra money.

Try to find things that make you happy and will help you earn some extra money. If you aren’t happy with what you’re doing you’ll have a hard time sticking with it.

Everyone has skills and hobbies. Turn the things you enjoy into sources for more money. If that means working on an existing skill or learning something new, then get busy. Read a book, enroll in a class, do whatever it takes.

Just be sure that whatever you try isn’t going to bring on more debt. You want to maximize your income while minimizing your expenses.

Here’s the only rule you need to follow to eliminate your debt:

Never charge again.

It seems too easy to be true, but I can assure you that it is true. I know because I’m living it right now. It’s working for me and it will work for you. If you truly want to get out of debt, stop charging.

Some people will try to convince themselves that this rule is impossible to follow. I’m not going to say that it’s always easy, but it is possible. You just have to ask yourself what’s more important – some material item that you can’t afford or your financial future.

As long as you’re charging, you’ll never pay off your credit cards. It reminds me of the old cartoon where the character is trying to stop a leaking dam by plugging the holes with his fingers and toes. For every hole he plugs a few more open up.

I’ve heard all of the excuses:

What about emergencies? — Guess what, your credit card debt is an emergency. And charging only makes it worse. I’ll discuss many other ways for dealing with emergencies in a future post.

I can’t afford to live without charging. — Yes, you can. You might not have the same lifestyle you had before, but sacrifices now will be worth it in the long run. Pay your bills first, then live on what’s left.

Everyone has credit card debt. — This is a common misconception. Not everyone is in debt, and even if they were, that’s still no excuse. If everyone jumped off a bridge, would you follow?

I could list excuses all day. I’ve said them all before. I probably even made up a few new ones. The point is you must stop charging if you ever hope to pull yourself out of debt.

Eliminating debt is about more than just spending money. You must make a mental change if you’re ever going to succeed. Charging is like an addiction. Convincing your mind that you don’t need it anymore is the most difficult part.

Once you’re really ready to start paying off your debt, commit yourself to this rule. Make it a mantra if that’s what you need. Start off each day by saying “I will never charge again!” Say it with conviction and really mean it.

I found that it really helped me to tell other people about this rule. I’ve told my friends and family “I’m never charging again!” Most people are understanding and supportive of this kind of life change.

If your friends aren’t supportive, it’s probably because they’re still in denial about their own credit problems. Send them to this site, maybe they’ll understand. If they still can’t accept what you’re doing, then it might be time to find new friends.

Commit yourself 100% to this rule and everything else will fall into place. It will take some time, but stick with it and I know you can do it.