I got my first credit card when I was 18. I am still in debt 15 years later. Its not the same debt, but I have carried debt ever since I got that first taste of freedom. If I wanted the shock of my life, I daresay I could calculate how much I have spent on interest payments. Now I'm getting older and more at rick of heart attack, it probably wouldn't be wise. However at the start of 2008, I guess you could say I came to my senses and started to get wise to the situation. I resolved to pay off my debts for good and become debt free. Here are some of the things I am doing to achieve the goal of financial freedom:
The first thing I did was sat down and calculated the total amount of debt I actually had. This is akin to an alcoholic admitting they have a problem. It's a difficult step, but one that needs to be taken for recovery. Debt is easy to get into and even easier to turn a blind eye to. Once I had figured out how much debt I actually had, the next thing to do was work out a plan of action.
I got all of my account statements and laid them out on the table. I looked at the interest rates and sorted them highest interest rate on top to lowest interest rate at the bottom. This is the order that they will be attacked. I make the minimum payments on all the other debts and pay as much as I can on the highest rate debt. Some people pay the highest interest rate debt first, while others pay the smallest balance first.
Paying the highest interest rate debt first makes the most logical sense financially speaking as that is where the most money goes towards interest and less towards the principal. However, paying debts off is not just a game of logic, it is also a game of psychology. This is where paying the lowest balance first comes into play. It is a huge boost to the ego when you can say “I've paid this whole debt off, on to the next”, it creates a sense of accomplishment and encourages you to proceed to the next debt.
What you can do now is take the money you were paying to debt number 1 and apply it and the minimum payment already being made to debt 2. This is called “snowballing”. You do this for each and every debt starting with the highest interest rate (which is what I did) or the lowest balance (which some people do for the psychological boost). If you stick to the plan and don't add to the debt, you will be well on your way to becoming debt free and financially stable.
For me, I still have a long way to go, but the main thing is that I am educating myself and changing the way I handle money and my finances.
