How to get out of Debt, pay off Credit Card bills, Save and Invest more of your Money

[Chicago69]

Hello everyone.

I thought with Christmas coming up and a lot of people relying on credit cards to buy gifts they can't really afford and with a lot of people who already have a lot of credit card bills and are tryig to figure out ways to get rid of them, anyone with some helpful advice could post it here to help those who want to be debt free once again, and also, start saving money for their future.

So, If anyone has any advice, tips, ideals, info, etc... for getting out of debt and on saving for the future, feel free to post it here.

 

[Bystander]

Instead of using multiple cards, stick with one and only one. Make sure it has cash back, rewards or miles, so you can build up reward points and manage expenses better.

However the best advice, don't spend more than you can afford! If you can't pay the balance at the end of the month, don't let it get to that point. A lot of things we think we need, we don't. Do you really need that $20 subs to netflix? Probably not. Its cool to have it if you got the disposable income, but if you're looking at mounting debt, time to pull back and cut costs where you can.

 

[rgraham666]

If you can't afford cash you can't afford it.

 

[M's girl]

Creditcard-money is nothing more (or less) than a loan you need to pay back. Creditcard companies make big bugs as soon as YOU can't afford to pay back that loan (on time). Late payment fees is what's killing you next to the high interest rates. That's why they are so eager to sell you the card in the first place. It's basicaly what rgraham666 already said: if you don't have the money to shift around (aka if you would not have it to spend in cash in the first place) you have no business owning a credit card...

 

[Monazwx]

I don't know if this helps, but paying down the lowest balance first helps me psychologically. However, it depends on the interest rates of the cards in question. Paying down the highest rate card may be better in the long run.

Any saving/investing tips for the Listers out there? (besides utilizing the 401K at one's job)

 

[Ezzy]

It is great saying cash and cash only, but lets get real here, more folks will drop into debt to give their kids and themselves Xmas, foolish it may be but it is a much more realistic scenario.

You are better off with a short-term signature or ordinary bank loan, than with the 17% - 23% on a credit card.

If you borrow the money you need short-term from your bank, credit union or family member, (not your local friendly loan shark), the terms are better than you can get on most credit cards, the interest is lower, and there is a lot less chance you will max it out, then go back to ask for a bigger loan, to pay of the smaller loan you already owe, just so you can keep pushing your limits higher.

 

[skizbees]

Write down the estimated amount you spend per month on Food, Utilities, Rent/Mortgage payments, miscellaneous items; etc. Then compare it with what your salary is, month to month. It's basic Economics..don't spend more than you can afford. That never works with credit cards though. Find some way to get as close to balancing your budget to break even. Eliminate purchasing frivilous entertainment items like Bystander said. Sell or give away items that you haven't looked at or touched in more than 6 months. Do you have multiple units of a particular item (Like a TV, DVD player, stereo system, computer, other technology items that eat electricity, etc.)? Ditch em.

P.S. Invest in real estate.

- College grad with $30k in loans, never owned a credit card.

 

[SweetErika]

Our strategy is fairly simple: we just don't buy more than we can afford in any given month. Of course we do have a car loan, some student loans and a mortgage, but all of those are well within our budget. We have a surprisingly low income, too, so making a lot of money really has nothing to do with one's financial situation.

We use credit cards for just about everything (partially because it helps us track our expenses), but again, we never charge anything we don't/won't have money in the bank to pay with, so it's a matter of convenience, not necessity. If we do have more expenses one month, we cut back until we've made up the difference.

At Christmas, people get what we can afford, and that might mean homemade gifts for other adults. We don't have kids, but if we did and were in a similar financial situation, we'd likely ask our families if everything could go into the kid's Christmas because neither they, nor we, really need anything. This tradition of overextending ourselves at the holidays is ridiculous - I don't know about your family, but one of the best gifts we can give mine is being financially healthy, and they'd rather have things that are free, like time together.

One of the best things I've heard is "You don't need to make more money to get ahead, you need to spend less." It's very true - people often become wealthy by living on the cheap. Maybe I take the money saving a little far with my coupons, rebates and sales, but cutting expenses is how we've gotten and stayed ahead.

Consumer Credit Counseling is a fantastic service for people who are in over their heads - the agencies (at least the nonprofit ones) get paid by the cc and other companies to get people to pay what they can afford, and are able to negotiate affordable rates and such for clients. Many will help people make a workable budget and educate them on finances, too. Going through CCC will NOT hurt one's credit; in contrast, it'll improve the FICO score in the long run because the bills are being paid on time.

If your state allows payday-type loans, NEVER EVER get them. They're an excellent way to get, and stay, in debt. If you're already in that cycle, contact CCC because they can help you get out (and the collections people can't contact you anymore once you're officially in CCC or bankruptcy). Sell your plasma, work on your day off, or eat Ramen for a couple of weeks, but don't allow yourself to drop into the payday loan cycle!

Use direct deposit if you can, or always take your paycheck/cash directly to the bank and deposit all of it into a savings account. Then, transfer over just what you need to pay the necessary bills as they come in. At the end of the month, you might have the balance of your savings transfered to another savings account, which is your emergency/investment money (we view it as a vault that we only get access to when there's a legitimate emergency or it's being invested - otherwise, we forget about it completely and don't consider it to be money we have).

If you can afford to do so (i.e. if you aren't in debt), open up a ROTH IRA account at a discount brokerage firm and have whatever you can afford (even if it's $25 or $50) go directly into it monthly. The income threshold for the ROTH is pretty high, and there are some awesome tax benefits for those with lower incomes, so it's like free money (as is the interest your investments will earn).

 

[SweetErika]

- College grad with $30k in loans, never owned a credit card.

Not owning a CC is really not a good thing. In fact, it can cost a person tens of thousands of dollars in inflated interest costs over a lifetime due to lower credit scores.

One of the first things my mom had me do at college was get my own CC. We charged tuition and books on it for a couple of years, and it was for emergencies only (I'd been on hers in high school, so I knew how to use it responsibly). Because I established good credit early on, Hubby and I were able to get apartments, the best car loans, and ultimately, the best mortgage rate/loan by 26. We were only approved for our car loan because one of us had at least 5 years of good credit (that was me; he only had four years).

If one can't use CCs responsibly, they're not a good option, but for those of us who can, it's very smart to have at least one to steadily build strong credit so we can save as much as possible on loans. It'd be awful to wait until you're shopping for a big loan to find out you could be saving a ton if you'd only used a credit card wisely for the past few years.

 

[Brainboyz]

For me, it means shifting money from lower interest rate accounts to the CC. I've racked up quite the debt simply because I was in college and needed parts for my Senior Project (tech-based, so parts were $$$). Then my transmission on my truck started slipping. To pay it off, I'm backing off the amount I pay to my 401k and Roth IRAs to pay off my CC. Why? Because the interest rate off of those two is lower at the moment than the APR on my CC. Crap happens, but there's always a way out of it if you look at the situation logically.

 

[glynndah]

Make larger payments than required to your mortgage and car loans. Add a bit on to each payment so that the total adds up to an extra payment or two a year. Be sure the money is credited to the principal rather than the interest.

As far as holiday shopping goes, shop where you can afford. If Wal-Mart fits your budget, shop there. If Goodwill is more your speed, spend your pennies there. Still too rich for your budget? Spend your skills: bake cookies, make candy, knit a scarf, weave pot holders, give gift certificates for your time -- baby sitting, walking the dog, house and/or garage cleaning, yard work, etc. And then follow up and actually do the work.

 

[skizbees]

Not owning a CC is really not a good thing. In fact, it can cost a person tens of thousands of dollars in inflated interest costs over a lifetime due to lower credit scores.

One of the first things my mom had me do at college was get my own CC. We charged tuition and books on it for a couple of years, and it was for emergencies only (I'd been on hers in high school, so I knew how to use it responsibly). Because I established good credit early on, Hubby and I were able to get apartments, the best car loans, and ultimately, the best mortgage rate/loan by 26. We were only approved for our car loan because one of us had at least 5 years of good credit (that was me; he only had four years).

If one can't use CCs responsibly, they're not a good option, but for those of us who can, it's very smart to have at least one to steadily build strong credit so we can save as much as possible on loans. It'd be awful to wait until you're shopping for a big loan to find out you could be saving a ton if you'd only used a credit card wisely for the past few years.

Please don't assume that because I don't own a credit card that I don't know how it works. I have 30k in loans because I attended a private college that wasn't a four year program. My parents are only helping until I get a full time job and then financially I'm cut off from that point on. (I'm looking forward to financial independence.)The bad thing isn't not owning a credit card per se, it's not having established credit at my age (23) in case I do need a card for items. I still use a guarantor with no difficulty. Everyone budgets differently.

 

[Ness73]

I got a phone call about 6 weeks ago from one of my banks offering me a credit card, just in time to load it up for Christmas. I told him no thanks, and he wanted to know why not? So I told him, if you can't afford to pay cash for it, you can't afford it. My husband has a low limit card that we use for buying tickets or flights etc, but it is always paid off before interest occurs. Credit cards do allow you to buy things that you wouldn't normally buy, just because you can "pay it off" Usually you don't pay it off in time and that item that was on special is now twice the price due to interest.

I know Christmas is usually a time of debt, but realistically, people need to draw a line. If maxxing out the CC is how you celebrate Christmas, you need to step back and remember what Christmas is all about. I have given presents that cost me $10 that have given just as much pleasure as a $100 present. But I would never go into debt to give a gift. It's just not worth it.

Wishing everyone a debt free Christmas!

 

[BreeCarter]

I don't know if this helps, but paying down the lowest balance first helps me psychologically. However, it depends on the interest rates of the cards in question. Paying down the highest rate card may be better in the long run.

Any saving/investing tips for the Listers out there? (besides utilizing the 401K at one's job)

i would kind of agree, but at the same time, paying off the one with the highest interest rate is smarter than paying off the on with the lowest balance.

 

[deliciously_naughty]

How we save

-Strict household budget
-We max our retirement fund contributions
-We only have credit cards that give us hotel points or cash back and ALWAYS pay them off at the end of the month so that we never pay interest on them (the hotel points have earned us two free weeks at top tier hotels over the past few years, and travel is our major addiction, so it's been a worthwhile investment for us)
-We invest in mutual funds that have good histories of return
-We comparison shop on damn near everything and buy it wherever it's cheapest
-We each have an allowance of spending money each week to do whatever we want with
-We have money that we've saved for emergencies and we've touched it when needed (like when I was out of work post surgery and ran out of sick days while waiting for short term disability-and when that check came in, it went back into the savings)


I'm relatively well off these days, but here's the advice I received when I was broke and struggling-

If you're in debt, you need to pay off your highest interest rate cards first. Separate out your debt between good debt (like low interest college loans) that earn you credit score points, and bad debt (high rate credit cards) that will hurt you.

You still need to put money away towards your retirement, starting around age 25. The average american needs to sock away 3 million or so to retire. If your company matches, you REALLY need to put money into a 401k, because you're missing out on money you could be making.

Pre-tax contributions to things like a 401k lower your taxable income which means you pass less in taxes.

Buying friends presents you can't afford doesn't actually make you a good friend. And seriously, does your kid need another 20 toys they'll just break or play with for a week?

I highly recommend Young Broke and Fabulous by Suze Orman for those in the under 35 set

 

[SweetErika]

Please don't assume that because I don't own a credit card that I don't know how it works.

I did no such thing. This is a thread about finances, and more than that, it's How To, where we share what we know and ask about what we don't. Just because I shared some stuff you may have already known, doesn't mean I assumed you were ignorant; it does mean I provided a more complete explanation just in case someone wasn't aware, which is quite possible given all of the negatives we hear about credit cards.

I didn't know whether you were stating not having a cc was a good or bad thing; I probably should have asked you to clarify, but making the point and sharing my experience was faster. I apologize if you my intent wasn't clear to you. On a related note, as a matter of course, I try to assume the best about peoples' intentions until there's a good amount of evidence that I shouldn't, and it's nice when others do the same.

I have 30k in loans because I attended a private college that wasn't a four year program. My parents are only helping until I get a full time job and then financially I'm cut off from that point on. (I'm looking forward to financial independence.)The bad thing isn't not owning a credit card per se, it's not having established credit at my age (23) in case I do need a card for items.

And that right there was my point - CC's can be a good way to establish credit fairly quickly and it's really helpful to have a long, solid history, in my experience. You sound very responsible, so perhaps your parents would be willing to allow you to charge some of the bills on your own CC while you're working on financial independence so you can establish your credit, like my mom did. My first card allowed me to use household income on the application and had a limit of $1000 or something, IIRC.

 

[Weird Harold]

And that right there was my point - CC's can be a good way to establish credit fairly quickly and it's really helpful to have a long, solid history, in my experience. You sound very responsible, so perhaps your parents would be willing to allow you to charge some of the bills on your own CC while you're working on financial independence so you can establish your credit, like my mom did. My first card allowed me to use household income on the application and had a limit of $1000 or something, IIRC.

My one and only credit card started out with a $200 limit -- now after nearly thirty years, it has a $3750 limit because it is the only credit card I've ever had and I keep it under control.

Everyone should have one credit card -- preferably from one of the "big three" VISA, Mastercard or American Express -- because it's nearly impossible to rent a car or hotel room without one; you can always pay the horrendous security deposit car rentals and hotel want if you don't have a credit card, but it presents cash-flow problems for most people to have to put down a deposit twice the size of your expected bill.

If you have a credit card with a high APR and a large balance and another credit card with a lower APR and a low balance, transfer the balance from the high interest card to the low interest card and pay of the higher interest card completely -- then quit using it.

Alway pay at least twice the minimum payment if you can and triple the minimum on the account you're trying to close out -- If your card is like mine and grants you an occasional grace month with no minimum payment, pay double the last minimum payment amount -- or more -- anyway; save that grace month for when you really need to skip a payment for some reason. I don't remember when I first got a statement with "no minimum payment" on it, but I've manage to keep every statement since then at "no minimum payment" for at least ten years.

I don't know if this helps, but paying down the lowest balance first helps me psychologically. However, it depends on the interest rates of the cards in question. Paying down the highest rate card may be better in the long run.

Paying off the lowest balance first is a bit more than a psychological advantage -- It removes one debt from your budget calculations and frees up cash from something you MUST pay to apply to higher payments on the higher interest debts. You will pay more interest in the short term for sure, but doing away with one payment completely can let you pay off the higher interest debt fast enough to "save money" in the long term. You'll pay more in absolute terms, but compared to the combined interest you'd pay by continuing the lower interest debt in addition to the higher interest debt over the time required to pay both off you can "save" some money.

It requires some serious analysis of projected costs and how fast you can pay off each debt to determine which order to pay-off debts and a choice of whether interest costs or speed in getting rid of debt is your priority.

In general, I'd recommend attacking the highest monthly payment first if doubling or tripling payments can get rid of it in a reasonable amount of time and your budget has enough room in it to attack the highest payment first.

If you can't afford to attack the mortgage or car payment first, then get rid of as many individual payments you can -- If you're paying more than eleven or twelve bills a month, you're paying too many bills and you should seriously look into debt consolidation. Try to reduce your bills down to Housing, Phone, Gas, Electric, Groceries, Cable/Satelite, Internet access, Car payment, one credit card, and one loan -- and work at getting rid of the Loan.

As soon as you start getting offers of more credit, feed them into the shredder as soon as you get them.

 

[rgraham666]

When you're on a disability, as I am, forget any form of debt.

There's no way on God's green Earth I can handle any debt.

 

[Chicklet]

Whenever I check my bank account, I put whatever odd amount of money is hanging off of my checking account into my bank related credit card. For instance if it's 3,127.91, I would put 2.91 into my credit card. Tiny little payments here and there really add up to your debt, and it's hardly noticable when you move such small amounts.

I only have the one credit card though, because I wanted to build up some credit in my life. Being 25 without any debt is nice, but I had no credit record at all.

 

[deliciously_naughty]

One thing that brings down your credit score is applying for too much credit. I'm often tempted by the discount I'd get if I got a store credit card (particularly if I've got a big purchase to make), but I don't apply for them because they give me no cash back and will result in a credit inquiry on my report.