Credit-card debt can be like a prison sentence.
What kind of time are you serving: 1 to 2 years, 2 to 5 years, 5 to 10, life?
Almost 10 percent of Americans believe they are serving life sentences. These prisoners of debt predict they will never pay off their credit cards, according to a 2013 poll commissioned by creditcards.com. Thirty-seven percent of respondents said it would take between two and 10 years to escape their debt sentences. The average age forecasted for freedom from credit-card debt was 53.
Their crime: Spending more than their income.
Spending more than we make can be so easy. Sometimes, if we’re not prepared for an emergency, we have no choice; but often, it’s simply the result of poor planning and a lack of discipline: “I deserve a vacation to Mexico. So what if I have to use my credit card to make it happen. I’ll pay it off later.”
This behavior can lead to an unnecessary and lengthy term in debtors’ prison, but don’t despair, a good plan can get you out – in about 12 to 18 months. I know, because I did it. When my wife and I created a plan and stuck to it, we paid off $165,000 in debt and saved about $20,000 in 15 months.
I’ve seen others do it, too. It’s time to ask yourself: “Am I willing to do whatever it takes to begin to succeed financially?”
Bills and emergency fund
If you have outstanding bills and/or lack a $1,000 emergency fund, start here. (If your household income is less than $25,000, aim for a $500 emergency fund.)
For an immediate boost to your cash flow, look around to see what you can sell. Boats, extra cars, all-terrain vehicles and other recreational equipment are ideal items to turn into cash. You can get them back – when you can afford them. Today, they can help you erase debt.
Best of all is selling things on which you owe money. This could be your car or even your home. When we were working to get out of debt, my wife and I sold our $300,000 condo, on which we owed $200,000, and bought a $200,000 condo with a down payment of $100,000. We erased $100,000 in debt in a single financial move.
Next step, your income. Consider getting a second job, working overtime hours or finding side jobs. Do this ASAP. Your lifetime income is your biggest wealth-building asset. If you need more training, education or skills to boost your income, get them as quickly as you can.
Now, those credit cards. You must create – and follow! – a realistic budget.
Your budget should include basic necessities, debts and obligations, accumulation for future expenses and money for a few small luxuries. Building a budget showed me where I could cut back on spending and pay down debt.
Think of your budget as a map to freedom. Along with conscious spending, selling unused items and increasing your income, you can escape the prison of credit-card debt.
matt.kelly.durango.gmail.com. Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoaching.com.