I find myself head over heels in debt. What are some ways — easy ones, please — to get rid of the debt?
— Owen Owe
Dear Mr. Owe: Unfortunately, easy solutions aren't always the best ones, and those I offer aren't necessarily the easiest.
However, if you follow the directives put forth by experts in the field, including the National Foundation for Credit Counseling, I guarantee you'll find yourself expressing kudos on this New Year's Resolution.
• Eliminate credit cards. Cut them up if you can, freeze them in an ice tray for less easy access, or otherwise use whatever method you choose to ensure you stop using these buggers. (I admit this is my worse downfall).
When you carry a balance, interest rates are added immediately to every single purchase, and the vicious cycle continues.
• Create a budget. I've suggested this in past columns but can't stress it enough.
We can't pay bills helter skelter without knowing exactly how much money is coming in and out per month. First, pay for essentials: mortgage, car, insurance, utilities and groceries.
What's left must go toward your debt, even though it will probably be tight. This obviously means you must cut out any discretionary spending (so long Starbucks) or come up with new income, such as a second job.
• Don't forego any bills. You're obligated to pay in order to protect your credit and to avoid any more interest and minimum payments. If you can't afford the minimum, then contact the credit card companies to see if they will temporarily reduce the payments.
Perhaps you need to contact a nonprofit credit counseling service (www.nfcc.org) that can negotiate your payments for the long term and create a more affordable payment plan. Forget consolidation loans, though.
• Pay one bill at a time. After you make all minimum payments, power pay every remaining dollar to the card with the lowest balance. This way you can clear that particular debt to reduce that loan amount and then put this amount onto the next-largest debt.
• Beware of low-interest transfers. Assuming your credit score is still good, you'll probably continue to get offers through the mail for low-introductory interest rates. Be careful though: many cards charge a transfer fee and, too, having a new card might tempt you to charge new purchases.
• Reward your successes. Using cash, treat yourself occasionally to a movie or dinner out or even a modest vacation. Just don't charge anything on plastic or you may find yourself back in the same pickle again.
Ellen Phillips is a retired English teacher who has written two consumer-oriented books. Her Consumer Watch column appears every Saturday. Email her at consumer watch@timesfree press.com.
Ellen Phillips is a retired English teacher who has written two consumer-oriented books. Her Consumer Watch column appears on Saturdays in the Business section of the paper. An expanded version is at www.timesfreepress.com under Local Business.