Several months ago, I realized that I should start reducing my debt. I am a 23 year old, recent college graduate. Here is an overview of what I have done since September.
Reduced Interest Rates on Credit Card Balances
Back then I had only four credit cards. AmEx Blue Sky (12.74% APR), BofA World Points (7.99%), Citi Diamond Preferred (15.33%), and Capital One (14.98%). All of them carried a balance under 1,500 except Capital One, which has a zero balance. I called Citi Diamond Preferred to reduce my APR because of my payment history, and now it's at a 10.9%! With a little bit of persuasion and persistence, I was able to bring my APR down almost 5 whole percent. I plan on doing this with my AmEx once I have a long enough payment history. Also, I applied for the Citi Driver's Edge credit card (a very good card) that has 0% APR on balance transfers. I transfered my AmEx balance and now the only interest I pay are on my World Points and Diamond Preferred, which have pretty good APRs. This means I don't have to pay huge chunks of interest each month.
Other Sources of Income
Working one job simply isn't enough. 80% of the time at work, I just sit down in front of my desk and browse the internet all day. Why waste time? I could be getting paid on top of what I'm already getting paid now with all this free time. I decided to try out some free online schemes to earn some extra cash on the side to negate the interest I was accruing on my credit cards. I signed up with Sharedreviews, Triond, got a $25 bonus for signing up with ING Direct, and sold some advertisement space on my website to earn a decent chunk of change - more than enough to cover the interest.
Budgeting My Paycheck
I decided to budget my paycheck in order to be more organized. Here's my paycheck's break down:
- 22% into FNBO Direct (high yielding online savings account) - $184
- 27% into my CC bills - $225
- 21% into AmEx (now 2nd Citi) - $175
- 3% into BofA - $25
- 3% into Citi - $25
- 15% into rent (utilities included and only until January) - $123
Now, I know exactly where my money is being going and how much of it. It's always good be organized. Everyone should start budgeting.
Methods of Debt Reduction
There are three methods towards this: the mathematically better way, quickest way, or the psychologically better way. The first way is to purge the debt of the card with the highest interest since I'll accrue more interest overtime. This method is what pretty much every financial adviser will tell you since it's smart. The second way is something Dave Ramsey made it popular, and it's known as the “Debt Snowball Method.” You prioritize your debt in the order of smallest to the biggest balance and paying off the smallest ones first. The last option is to pick out the card that irritates me the most and paying that off as fast as I can.
Choose the one that fits you the best. Often times, going with the mathematically smart option isn't for everyone.
Overall, I've been able to knock down my debt one step at a time and it's been working pretty well. Debt reduction, managing finances, budgeting and being organized are important aspects of life anyone should be willing to learn.
