3/7/2011 12:55 PM ET|
8 creative ways to stay debt-free
If it took you a long time to climb out of the credit pit, the last thing you want is to fall back in. Experts offer techniques for staying in command of your money.
You've paid off thousands of dollars in credit card and loan balances. It took years of effort, sacrifice and hard work. Now that your statements finally read zero, your cards are open and the spending limits are high. A delicious sense of freedom is calling. Just a charge here and there won't hurt, right?
Careful, though. It's easy to get caught up in the debt cycle again, especially if you're itching to break free of that old restrictive budget. Here are tips from the experts to help you stay the course:
1. Remember the agony. Living in debt was dreadful, wasn't it? All that pressure and anxiety, maybe even physical ailments. Keep those painful memories alive, says Denise Winston, the founder of Money Start Here, a financial education company in Bakersfield, Calif.
"Make a list of how awful you felt about being in debt on the outside of an envelope," says Winston. For example, you might have had low self-esteem, stress, insomnia, high blood pressure, relationship problems or lost productivity at work. Then place your credit cards inside the envelope and seal it. When you're tempted to charge something you can't afford, you'll read your own words about how debt affected you -- and decide to stick to your spending limit.
2. Involve your friends. Sometimes you need the support of loved ones who know what you're trying to achieve. Therefore, says Winston, lean on them to keep you on the straight and narrow. "Make a pact with a friend and vow to call each other prior to any charge or temptation to charge." You and the friend can further the challenge by promising to share your credit reports with each other every six months or so.
Keep in mind that you'll want friends who inspire you, not depress you. Make sure you choose those with positive attitudes.
3. Employ social networking. Shelagh Braley, the CEO of My Life List, a social network for goal achievers, believes that making a public, online announcement can make all the difference in maintaining a financially healthy life.
"Use your social networks to declare your goal, ask for accountability and gather support and knowledge you need to get there!" says Braley. "Guaranteed, there are other people in your circle who share your desire to stay debt-free and are just waiting for a reason to commit. Then you can all do it together."
4. Broaden your budget. A perpetually tight financial belt is a problem, so loosen it up a notch before you rip it off. My Money Mess personal finance blogger Christopher Scully stresses the importance of constantly refining and revising a cash-flow plan. If a budget isn't elastic, you'll eventually stray.
"Build in achievable goals, then rework your budget to include saving for it," says Scully. "Allot some sort of reward money for hitting monthly milestones on the way." By doing so, you'll prepare for long-term objectives while having enough funds to satisfy your desire for spending liberty.
5. Reduce temptation. If access to an abundance of credit is overly seductive, cut it down. Ronit Rogoszinski, a wealth adviser from Arch Financial Group, suggests abandoning excess credit accounts, leaving only two major cards.
"All the store cards that you opened to get the 10% discount for opening one up, close them," says Rogoszinski. "Some will say that this will hurt your credit score; personally and professionally, I don't care." Why? Remaining debt-free is not only vital to your net worth, it will actually benefit your credit rating. A full 30% of a FICO score is based on how much debt you're carrying in relation to your credit limit, compared with the length of your credit history at 15% of the score.
6. Frame the ugliest bill you have. Keep a copy of the statement with the highest balance and display it. Kristen Hagopian, a motivational speaker and author of "Brilliant Frugal Living," says this tip came from one of her students, who repaid $82,000 in five years.
"After putting herself into massive debt, she had a turnaround moment where she realized she was out of control, buckled down and never looked back," says Hagopian. To remain motivated, she keeps the five-year-old credit card bill (complete with "Balance Due: $82,000") on her refrigerator. "She told me that having that credit card bill on her refrigerator reminds her daily that she never again wants to feel that out of control of her finances or her life."
7. Refine your value system. If you really want to stay on budget, says psychologist Sally Palaian of Bingham Farms, Mich., the author of "Spent: Break the Buying Obsession and Discover Your True Worth," you had better first identify what makes you happy.
"Take the time to really think about what you want and why," Palaian says. Then add those things into your budget. "You'll get more pleasure out of spending money and be less likely to blow it on impulsive purchases or trying to keep up with the Joneses."
8. Save your old debt payments. HelloWallet founder Matt Fellowes says you can offset the budget blues by doing something smart with the cash you had been sending your creditors.
"Once you get rid of revolving credit card debt, take the money you were previously using to pay off debt each month and put it toward building up emergency savings," says Fellowes. "Having extra money socked away for unexpected expenses is one of the most effective ways to stay out of debt."
As with dieting, once you've achieved your desired goal, you've got to keep the momentum going or you'll undo all that hard work. So the final tip: Enjoy your success so much that you refuse to let those balances edge up again.
This article was reported by Erica Sandberg for CreditCards.com.
VIDEO ON MSN MONEY
1. Don't get caught up in consumerism.
2. There is no need at ALL to keep up with the Joneses.
I find it comical when the media reports of a new Apple product for instance and thousands of people all over the country are in line before the sun comes up on the day it is released. All just for bragging rights. They never think of the money they just spent on a product they didn't need.
Let me leave some parting words before I turn in for the night. I didnt become debt free overnight. Additionally When I was younger I wasnt perfect with my credit. I paid off all my debt (and it took me 4 years) and never looked back. I have never been this happy and free to do what I want within my means. I never have to worry about the "what ifs". What if I broke my neck, what if I broke my legs, what if I lost my job, what if ..... Pfft! Those what ifs were created by the system that lenders created. If you properly budget and manage your money you will never need to get a loan from anyone but yourself, and yes thats interest free because to you. Your own credit rating is 1,000 pts! Also I currently have enough saved up in my IRA and Saving account that is I didnt want to work or something happened. I could easily exist for the next 92 months without needing to work. That is how being debt free is!
Always put at least 15% of your income into some IRA (never less than 5k yearly), save at least 10% more in an interest bearing (your money makes u more money safely) savings account. Over time you would have built more than enough to give yourself a loan to visit England or buy a car or whatever! Some perspective on that.. If you make 35k a year and put 15% ($5,250) into an IRA. Over the course of 10 years of doing that you would have at least $85,000 dollars! Not to mention what you would have in your savings account that you were putting 10% into. After 10 years and you not touching it unless you wanted to. You would have at least $32,000 dollars in that account. Some combine you would have $117,000 dollars at your disposal. Thats just after 10 years and you still have 75% of your income to play with for everything else. Even after just a couple years you could start spending on yourself interest free and be debt free. Being debt free would free up more of YOUR money to put into YOUR interest accounts. That means the bank is paying you interest for the privelage to hold your money safely for you. Instead of going the other way around. Wow I am tired and I hope I didnt ramble to much. GN all!
Stay away from credit cards totally. I use the Dave Ramsey plan. If I cannot layaway or cash then I don't need it. It's psychology. You spend less when paying cash and you get better deals. You think because you pay the card off monthly that you are beating the system. This is a multi million $ game and banks are not in the biz to lose $. They still make money off of you. I know you use it for the rewards. Well that is just one part of this game. They are luring you to spend money you don't have. The intent of the card was to build credit and EMERGENCY purposes only. Your Aruba vacation is not an emergency.
credit card companys are not handing out CREDIT or HIGH amounts of credit on the cards!
I have a credit socre of 734 and has been high for over many years - I do not buy much and I do charge on the three cards i have but I pay them off each month or with in two months!
I have never maxed out a card I have a NEW home of a year and a NEW truck now a year old and have never been late on any payment! Most of the time I pay more way more then what is owed.
Here is where my problems come in to play with credit cards - I asked for a NEW Venture card yes from Cap one - I got a letter back saying I did not meet then needs to own or have such a card - hmm OK?????? Now I also then went to Citi cards and just asked for a Mastercard -
I got a letter back saying sorry I did not meet there needs to have such a card!
NO reasons why I can not get the cards.......
My income permonth is $3,700 a month as I am retired - The cards I have well manyly one of them with HSBC will not even talk more credit with them it's stuck at $500 and they will not go up on the amount????
So you see even with good credit / good score 734 / good payments always / never late /
I can't even get a card to use on Vacation with a higher limit that is all I wonted to do!
Do not tell me they are giving out credit or credit cards cause I can't get one and still do not know WHY - yes i called them - answer = you have tighten up on credit and credit cards sorry!
The NEW wacked out credit world we live in today...................
The most creative way (and really only way imo) to stay debt free is to not have debt! Simply put.. Dont buy anything you cant save up for and buy it in cash. With that said.. Creditors, banks, etc are businesses so yes they want to be a middle man for you, over extend you and make some cash off you. Credit reporting agencies are businesses also, they are not any kind of federal agency and they make money off of the people who pull your credit history. See the domino money effect? Its all about business and making money. So if you never use "credit" then really your credit score doesnt matter because you will be paying it in cash or debit and both are interest free.
My words of wisdom
1- Have a budget and live by it
2- Live within your means
3- Pay for everything outright
If I lost my job right now I would only have to pay property tax, electric, water, food and insurance bills. That would only be around 630 bucks a month. I could wing that working at McDonalds (if I had to)! And the awesome thing is I get to keep all my nice stuff, my 2 cars, my house and the shirt on my back! I am 36 yrs old and I became totally debt free 3 years ago because the system is geared to screw you over.
People who pay their credit cards off each month... You still pay the annual fee, in some cases other fees apply also so if you have the cash why not just use cash instead? Sure you might say oh its just 40 dollars a year.. True but that can add up in various ways.
After more than 3 long years of scrimping, penny pinching, and sacrifice for me and my wife, we are debt free!!! All during this ongoing recession! We paid nearly 35,000.00 off in credit card bills. We are far from rich, and not even middle class, (whatever that is these days). The best advice I can offer is pay the largest credit card debt first then use that money to roll into the next largest, kind of like a snowball effect. With each paid off debt you roll a larger amount into the next. We cut out all unnecessary spending like newspapers, magazines, bottled water, cable, our land line telephone, dining out, fast foods, vacations, and so on....We sacrificed and now we are reaping the benefits! We have only our mortgage payment and utility bills, the rest we stash into savings.
Get your friends in on it??? Oy! Are you kidding me? That's about the dumbest thing I've ever heard.
Ke Ken: Just chalk it up to the fact that those companies do not meet YOUR standards. With a credit score of 734 you should be able to pick and choose who you want to do buisiness with.
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