Q: Vicki, I’m absolutely overwhelmed with my financial situation. I’ve maxed out many credit cards. How do I even begin to pay them off?
Everyone tells me how important it is to save money. So every time I get paid, I’m conflicted—savings or debt? What should be the priority in my situation??
A: We hear this often, and understand this is a very stressful situation. What you hear is at least partially correct: every working person, no matter what type of job they have, should be building savings at all times. Always pay yourself first. Even if it’s a small amount, make this a priority. When it becomes second nature, your account steadily grows.
People who save money consistently seem to connect more to their financial situation and watch spending more carefully. With consistent savings, you’ll see and feel the change, you’ll be on your way to becoming financially fabulous!.
Save at least a few dollars each week. It gets you into the habit of saving consistently and grows that emergency fund. Having money designated for emergencies makes it less likely that you’ll need to use credit. The rest of your extra money is best used to pay off your credit cards as quickly as possible.
Different ways of paying down debt include–
1. Pay the credit card with the smallest balance, then move on to the next lowest balance and add the amount you paid for the lowest balance. Often called a snowball method, this gives a sense of accomplishment for having paid off a debt.
2. Pay off the credit card with the highest interest rate first. Once you do that, move on to the credit card balance that has the next-highest interest rate, and so on. Usually, the accounts with the highest interest rates have the highest balances too. While this may not be as satisfying in terms of paying off entire cards, this method can save you much more in the long run. Finance charges add up quickly!!
3. Approach your creditors and ask for a lower interest rate. Having a lower interest rate will make a more substantial dent in your debt. Look for cards with a low introductory rate for balance transfers and transfer your debt to that card.
4. Consolidation loans. This is advisable if you have the willpower to stop charging on your current credit cards. Use the loan to pay off the balances and make one payment to this loan. This method is of no use if you run up the balance on your now paid-off credit cards.
5.. Many people take on a second job or a side hustle and use that income to pay down debt. This can be very helpful if you can fit the extra work into your schedule. Once debt is paid off, you can then use the money for savings if you do not currently have a savings account.
No matter what method works for you, dig deep and make it your goal to get it done. The best way to become financially fabulous is to get rid of debt. It can take time, a long time, but focus on your budget and pay down that debt!
I invite you to join my Financially Fabulous Facebook group. We are having weekly challenges on savings, budgeting, and paying off debt.