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Debt Diet
By Penny | April 3, 2008
I’ve come to the conclusion I need to go on a debt diet. I have been all fired up to go on an expensive overseas trip when reality hit me between the eyes. I have $22k of credit card debt and I’d be going into more debt to pay for the trip. Not a smart idea, huh?
One of my favourite websites is www.daveramsey.com. It’s a site about getting out of debt and getting savvy with your personal finances. I like the stories from people who used Dave’s method to get out of debt.
Dave’s method is to basically never, ever, ever use a credit card again.
First, you save an emergency savings fund of $1000. You only use this for real emergencies, not emergency shoes.
You need to look at all your debts and write them down. Just say you have 5 credit card balances that need paying off. You pay the minimum on four of the cards and on the card with the lowest balance, you pay a bit extra - however much you can afford, but get real about it. Dave would advise you to sell your ‘toys’ like motor cycles, boats, appliances like the 2nd and 3rd television sets and to start selling things on eBay or have a garage sale to get rid of everything you don’t absolutely need and to then use that money to pay down your debt.
Once you have that smallest balance paid off, you apply the money you had been paying on it to the next smallest debt. Keep paying the minimum balances on the other three cards. Repeat the process until all cards are paid down.
Some people say you should pay the card with the highest interest rate first. I think it’s a matter of personal choice but for me the satisfaction of knocking off the small balances quickly outweighs the few hundred dollars I’d save in interest over the period as my interest rates are all pretty much the same. As it happens, the card with the highest interest rate (17.95%) is als the smallest balance (about $1200).
So what I plan to do is to keep a log of my credit card balances and post here each month and tell you what I paid on the debt and we can all watch the balance come down.
My goal for the remainder of the year is to pay off $15,000 in debt. I don’t know if I will make it, but I’ll give it a good go.
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