Key Steps You Can Take Now To Get Out of Debt
By glblguy
Romans 13:8 – Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.
Let’s face it, getting out of debt requires a great deal more time and effort to get out of debt than it does to get into debt. Getting out of debt is not an easy or quick process. To be honest, it seems to take forever and it’s hard…real hard.
Contrary to popular belief, the bible does not teach that debt is evil or sinful; however the bible is pretty clear that debt is not advised. In Romans 13:8 it says we should “let no debt remain outstanding“. Here are some some key steps you can take right now to “let no debt remain outstanding“:
1. Cut up your credit cards
If you don’t have them, you can’t use them. If you keep using your credit cards, and keep racking up debt you can’t pay back. Cut up your cards. Matthew 18:8 – If your hand or your foot causes you to sin, cut it off and throw it away.
2. Pay more than the monthly minimum on one card
If you pay on the minimums on yours cards each month, it will take you a very long time to payoff your card. Not to mention you will pay an incredible amount of interest. Trust me, the credit cards companies know this, and they love people who pay minimums.
Let’s say you have a $5000.00 balance on an 18% interest rate card and you pay the minimum of $200 per month (about 4% of the balance). It will take you 12 and half years to payoff this card completely. You will also pay the credit card company almost $3000.00 in interest when all is said and done.
Here’s the catch though, that’s assuming you don’t use those cards anymore and that you pay on time. If you don’t pay on time, your rate can significantly go up. If you continue to use the card and pay minimums you’re just making a bad situation worse.
At the very least double or triple your payment on one card. Even better, establish a debt snowball and work it aggressively. Be as passionate about paying off that debt as you were when you bought that big screen TV, new suit, furniture, etc. I would suggest paying on your card whenever you can.
If you want to see what your true cost is of paying the minimum, use this calculator.
3. Reduce your interest rate
Like most things in life, interest rates on debt are negotiable. Banking is very competetive right now. You can often get a reduced rate by just calling the credit card company or lender. Reducing your rate will reduce your payment, so don’t start paying less. What you are doing here is reducing the total amount you will pay, not the payment. No guarantees though, as some credit card companies won’t reduce it.
4. Transfer your balance to a lower interest rate card
If you are like me, you get at least 3 or 4 0% interest rate offers per week. Moving your balance from a high interest rate card to a low interest rate card is a good move. Be careful though, a number of credit card companies these days charge balance transfer fees around 3%-5%. Also be warned, that if you miss a payment during the 0% time frame your rate will go up to 18%+ rates immediately.
I advise moving to a new 0% card in under one condition, when you get the new card, you cut it up immediately.
5. Pay your debt bills on time
As i have already mentioned above, not paying your bill on time can really cost you. Not only will the credit card companies frequently increase your interest rate, they will also charge you a late fee. If you miss payments too many times or not pay within 30 days, your credit can be effected.
Regardless of whether it is a credit card, or utility bill, car payment, or mortgage make sure you pay your bills on time. Late fees are just a tax on not being organized. There is really no excuse in today’s world with electronic calendars, cell phone reminders an online bill pay services.
6. Don’t blow your windfall money
Receive a big tax return, or get a surprise bonus from work? Don’t go and blow it on the latest gadget, clothing, or whatever else you want (but don’t need). Use it to payoff your debt. Taking these unexpected (or even expected) windfalls and paying against your debt can make huge dents in something that often seems overwhelming.
If you are in debt and use cash that you have to purchase something, it’s the same as purchasing it on credit. “Huh?” you say? Well, you are keeping that amount money in debt and you continue to pay interest on it, rather than paying it off, it’s the same as borrowing the money off the card. No different.
7. Increase your income
To free up money in your budget, you have two options: 1) Decrease expenses or 2) Increase your income. Given you are in debt, while you might be able to decrease your expenses some you might make a much bigger difference increasing your income.
Some ideas to do this are: Get a second job, have a yard sale, sell stuff on eBay or Craigslist, make money blogging or business, start a small side business with your hobby. Proverbs 14:23 says “All hard work brings a profit, but mere talk leads only to poverty“. So go work hard and apply those profits to your debt!
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August 16th, 2007 at 2:23 pm
Re: Point 4 about transferring to a lower interest card, I agree – in part. I think you need to be wary of 0% interest offers, as sometimes it’s not worth it. I got a 0% card from my bank to transfer some credit debt to. Once I received the card and called the bank to figure out all the details I discovered that it wasn’t really a good deal. During my 6 month 0% interest period, I think I found I’d save maybe $20. Once I factored in the risk factor of the company not processing my payments on time, or any possible problem causing the 0% interest to be lost, or delaying my ability to pay off within the 6 month period of time, I decided to cancel the card. I may have saved $20, but now I am going to pay off the card this month that I was planning on balance transferring. At this point I don’t care. =)
August 16th, 2007 at 3:04 pm
Hi Daniel, thanks for stopping by. I agree with you. People need to understand the deal, and read the fine print (i.e. the balance transfer charges). Depending on your current rate and balance, you are dead on, it may not save you much at all. Also you factoring in risk is smart. Risk is something many people don’t consider.
Thanks again for offering your dead-on insight.
August 16th, 2007 at 3:11 pm
1. Cut up your credit cards
This one is so important. Glad to see it at #1. Its amazing how fast those things can get you into debt. Fortunately I learned very early on and have never carried a credit card balance but the horror stories I’ve read sound terrible.
6. DonÂ’t blow your windfall money
Another excellent point. The unexpected money should never be used to go out and buy yourself a “present” although thats how it gets used most of the time.
August 16th, 2007 at 3:13 pm
Hi Lauren, been reading through your content off and on this afternoon. Good stuff!
Thanks for the comments and for visiting.
August 23rd, 2007 at 8:45 pm
I like most of your points but I do not believe in cutting up the cards. If you are going to be serious about not using the card then I think you should go ahead and close it. I am not a fan of cutting up or freezing cards. I think we should be able to train ourselves to put the cards away and not use them but not have to resort to such measures.
November 8th, 2007 at 2:18 pm
I know it’s November and kind of late to comment on this post…Trent @ The Simple Dollar speaks kindly of you so I thought I would check the site.
I just went to a seminar last night on FICO scores and I know the best suggestion is to pay down your credit cards, but to keep them active so that you keep your FICO score up. I’m not an expert, but it seems low activity below 25% utilization would be best, in order to keep the FICO scores up, in case you need to prove great credit in the future. You have to use revolving credit and installment credit to prove you have good credit.
I’m also working my way out of credit card debt, have totally gained control of use of the credit cards but once they are paid down, will continue some use to keep my FICO score at a number that I can accept.
November 8th, 2007 at 2:33 pm
Hi ZenniHill, thank you for visiting! Trent is a great guy and I enjoy reading his blog.
Never too late to comment. Your points on FICO are dead-on. I’m not too worried about my FICO right now, nor am I for in the future either. The only thing I plan to purchase on credit in the future is a home, which you can buy without a FICO score.
Keeps us posted on your progress. Thanks again for visiting.
June 27th, 2008 at 5:29 am
really good advice, especially the part about paying more than your minimum payment. I would also add transfer any savings you have to pay off your credit card asap. The interest payments on your credit card are likely to be at least double the amount of interest you will earn from any savings account.
May 25th, 2010 at 8:24 pm
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