I cannot stress enough right now how important I believe it is that you pay down your debt ASAP. As you saw in the credit score (and more on credit score) posts paying on time and balance of credit to credit limit are really important.
I truly believe that we are in for “another recession”. I am not really sure the first one has ended but I think we are on the heels of another. I think this one will be worse and longer. I don’t know what that *really* means to you and me and the economy as a whole but I’m pretty confident we will find out in the near-term.
All that said, right now is the time to get straight before you have no options. You might feel out of options today but you might really be out of options in six months. This isn’t a scare tactic because I have nothing to gain from a recession. I am simply suggesting that now is the time to pull your head out of the sand and see the light (no pun intended).
In order to pay down debt “smartly” you need to have a plan. Which is what you’ve been doing in the steps of Single Mom’s Guide Money Guide! There are a million books out there that have differing opinions on how you should handle debt and I have not read them all, but the few I have read ALL have one common suggestion: DO NOT PAY THE MINIMUM on credit card debt, PAY EXTRA. Not only will you pay off debt quicker but you will help your credit score recover quicker in most cases too.
I understand that everyone has a different situation so do what is right for your situation. First, if you haven’t already read through Part I, II and III of this guide and get honest with yourself. Second, PAY EXTRA. If you have a credit card (or more than one), a mortgage and a car payment pay more to the credit cards first. Chances are those have a much higher interest rate than your car or house. Do everything you can to pay an extra 20%. If you are paying $200 per month right now because that is the minimum payment, start making payments of $240. It might be a stretch for you need to make it happen.
I can’t even begin to put into words the amount of money you will save and the length of time you will save yourself. I have been using a free online tool to measure my debt and how much extra I will pay each month. Vertex42. The version I have is from 2005. (Word on the streets is that a new version was recently released.) I use it purely as a directional guide. I have a goal of having my credit card paid off in two years, this tool helps me do that.
If you have a goal of 5 years or 1 year, you can play with the numbers to figure out if it is an extra $20 or $200 that you need to pay EXTRA per month. It will likely be very eye opening. If you feel too overwhelmed right now to put a time limit on yourself then don’t, but you should still use this tool for sure to educate yourself on *your current financial situation*.
I do this on my mortgage too. Right now I pay $100 extra per month on my mortgage. GET THIS! If I didn’t pay one extra penny on my mortgage payment I will have my house paid off in 27 years and will have paid more interest than I care to admit. By paying $100 extra per month I will have my loan paid off in 21 years!!! HOLY COW! I know that as time goes on and my credit card debt is gone that I will put even more toward my mortgage and that number of years will lessen even more. Not only that but I will save close to $100,000 by doing so. This is a HUGE gift to yourself so get ‘er done.
I even go as far as too see how much time it would take if I put $150 vs. $100 to my mortgage. It makes me giddy. I can’t do more than what I am doing right now but once my credit card is gone I anticipate putting the full payment amount toward my mortgage.
If you are breathing into a paper bag right now stop it. If you commit to paying an extra $50 on your credit card; DO IT. In fact, take it out of your monthly budget so that you don’t even know it is there. It isn’t an option to touch. If something catastrophic happens and you absolutely need this extra $50 then by all means use it. I mean you don’t want to make the situation worse so don’t make it worse by putting yourself in a bind.
The other thing is being proactive which is super easy if you have a budget already prepared! When you have a budget you can easily plan for something that “comes up”. If you don’t have a budget you’re left in the cold wondering where the heck you’re gonna find $50.
Don’t miss the rest of the series:
Part I of Single Mom’s guide to getting out of debt: Budget and Realistic goals
Part II of Single Mom’s Guide to getting out of debt: Debt
Part III of Single Mom’s guide to Getting out of debt: Making Change