Picture yourself debt-free — no more bouts of anxiety
over mounting credit card balances, no more slavery to
your debt, and no chance of threats from the dreaded collection
agency. You can do it! Here's the scoop — in one
minute flat.
0:60 Resolve to spend less than you make
Make it a habit as fundamental as stopping for red lights. Realize
once and for all that if you can't pay for it today then you can't
afford it.
0:55 Distinguish between Bad Debt and OK Debt
OK Debt has an interest rate well under 10% — preferably
with some tax advantages to boot. In the best case, the
thing you bought with borrowed funds will appreciate in
value. Home mortgages and student loans are examples of
OK Debt. Automobile loans are on the borderline: They often
satisfy the low-rate piece, but automobiles almost never
appreciate in value. Bad Debt is everything else — from
your titanium credit card to the 35% loan from Larry's
Kwik Kash.
0:50 Pick a winner
Pick the one major credit card that features
the lowest annual interest rate. Cut up your other cards,
including all department store cards, into lots and lots
of little pieces. (If you have plenty of ventilation, you
can try to set the plastic shards on fire.) Resolve to
use the one card left intact for emergencies only.
0:41 Gather the latest bills from all Bad Debt
accounts
Line these up on the kitchen table. Find the
minimum monthly payment for each account and then add these
up to get an overall monthly minimum. Pledge to pay this
overall minimum PLUS a hefty additional chunk every month — enough
to make a solid dent in the outstanding balance of at least
one account. If you can't pull this off, you'll have to
make a drastic move to increase your income or lower your
expenses. It's harsh, we know, but it's also an inescapable
fact.
0:34 Pick the highest interest rate account and
attack! Lather, rinse, repeat
Next, order the latest bills according to annual
interest rate charged. Apply the "hefty additional
chunk" (beyond the minimum) to the highest rate account(s).
Repeat monthly until the last Bad Debt account is paid
in full.
0:26 Ask for a lower rate
Grab a bill from any account charging you more
than 14% interest. Dial the toll-free number on the bill
and ask to have your rate lowered to 11%. Tell them that
you'd really like to stay with them out of customer loyalty
(embellish according to your acting skills), but that you
have received offers for much-lower-rate cards. Expect
to be made very uncomfortable, but stand firm and remember
that, to them, you are both a customer and a profit center.
You also stand to save a bundle. The more calls you make,
the more persuasive you'll get.
0:18 Be prudent
Be aggressive in paying down Bad Debt, but don't
get so ambitious that you risk missing minimum payments
on your mortgage, automobile, or any other secured credit
account. (Secured means that if you miss enough payments,
the bank can show up and take your stuff.)
0:12 Spend time on our Consumer Credit / Credit
Cards discussion board
You'll find plenty of emotional support and great ideas. Help others
celebrate their debt-free "happy dance."
0:05 Dance, Fool!
You're done when the Bad Debt is 100% exorcised
and you can make remaining OK Debt payments with ease,
leaving plenty of budget room for savings.
