Before you make major purchases, clear up any financial glitches you have. These steps may not be sexy, but you'll get in the black again -- and can plan for that trip to Aruba.Click here to download the PDF file
Make Budget Cuts
Do everything from limiting your dinners out to selling your car to save money. Raise your insurance deductibles (to lower your premiums), sell old items online, and ditch your land line.
Compile a List of Combined Debt
Include these categories:
- Type of debt (credit card, car loan)
- Amount owed
- Minimum payment required
- Interest rate
- Current monthly payments
- Payment due date
- Paid in full/reward
Reorganize Your Debt Hit List
List each payment by order of interest rate -- starting with the highest APR (annual percentage rate) and working down the list.
Prioritize Your Payments
Add up all your monthly obligations from the “Current Monthly Payment” column. Pay the minimum on each card and put the most on the highest rate card. Soon, you’ll pay it down and start working on the balance of the next credit card on your list.
Negotiate Better Terms
Call each credit card company and ask to lower your interest rate. Ideally, you want them to offer an APR in the single-digit range and have it last until the debt is paid off.
Move Your Debt to the Lowest Rate Cards
- If your lenders won't budge, call the credit card companies on your list that have the lowest APRs. Ask to transfer debts from your higher rate cards at this lower interest rate.
- If you do decide to cancel some cards, don't do it all at once, or else your “debt-to-available-credit ratio” on your credit report will look out of whack.
- If your debt is primarily school loans and not on credit cards, consider keeping only your oldest cards (the older they are, the better they are for your score).
Limit credit card use. All new charges can mess up your payoff plan and may be subject to even higher interest rates than the ones you negotiated for your transferred balances.
Pay All Bills on Time
One late payment to any of your credit cards can trigger a rate hike -- with penalty interest rates in nosebleed territory of 25 percent or more. So mark the deadlines from your "Payment Due Date" column on your calendar in bold red ink.
Fill in "Paid in Full" Column
Put a big “X” through each item as you pay it off. Reward yourself with an ice cream, a picnic in the park, or a new download from iTunes.
Nestpert Dayana Yochim, personal finance expert at The Motley Fool and the author of The Motley Fool’s Guide to Couples & Cash: How to Handle Money With Your Honey
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