After coming clean last week about my credit card debt, I’ve gotten tons of questions about how I took the first steps in getting out of debt, budgeting, and taking control of my finances. I figured that doing two follow up posts to keep the length digestible would be a good idea to answer most of the questions that have come my way since that post.
Today I’m going to talk about some first steps to start to feel in control of your finances and make some progress on credit card debt, and in the next follow up post I’m going to talk more specifically about budgeting and ways to cut money easily and still live and eat well!
I hope this goes without saying, but I am in NO way a financial advisor or expert (clearly), I’m just talking about my real life experiences and what has worked for me.
1.) Use Mint.com.
If you don’t already use Mint, you should. It’s free, very helpful and easy to use, and just such an awesome system. I know, I know. Setting it up takes some time because you have to put in your account numbers and log in information, which was my attitude for way too long after I learned about it, but just suck it up and do it. Whether you have credit card debt or not, it’s an awesome tool for getting in control of your financial situation.
How it works is like this – you basically input all of your accounts – bank, credit cards, 401ks, student loans, car loans, etc. Every time you log in, it updates your accounts and tells you how much you have/owe, if there are any new alerts on any of your accounts, and what your net worth is. You can set goals – like get out of credit card debt, save for an emergency, save for a vacation, etc. It helps you set up small concrete steps so you can actually make your goals happen (sounds kind of light weight loss, doesn’t it!?)
The “new alerts” portion is especially helpful for me – last week I logged in and saw “You’ve been charged a return payment fee of $25” on my new credit card. I called them immediately – it turned out I had inputted my bank information incorrectly since it was my first time setting up a payment, so they removed the charge and allowed me to do it again. I probably wouldn’t have noticed it otherwise since it was only $25, but $25 is $25!
2.) Set up a budget.
This can be scary. I know for a loooong time, I felt so in over my head with all my payments and bills, that I basically shied away from creating a budget because I didn’t want to know how little I was working with. However, once I plugged in all my numbers, I realized I had way more “extra” money than I thought, and I had no idea where it was going! It was extremely eye opening for me. Even if you think you have nothing to work with – try it! It will only help you become aware of where your money is going and what areas you can potentially cut back in.
You can set up a budget in mint.com, do it in an Excel spreadsheet like I do, or use many other templates/websites out there for this sort of thing. You can decide how detailed or general you want it to be. I basically set up just the bills I have, and then consider everything else (going out, groceries, gas, etc) part of spending, but you can break down those expense if you want. If you drive to work every day, it probably makes sense to make gas a fixed expense, but since I metro and rarely fill up my tank, it makes more sense for me not to break it out. Feel free to email me if you want some help – email@example.com.
I thought that setting up a budget was going to make me feel SO restricted, but in all honestly it actually is so freeing! Knowing how much money I have to work with and not cringing and hoping I won’t be overdrafting my account every time I use my debit card is a very good feeling.
3.) Set up an emergency fund.
When you set up your budget, you’ll see how much you have to work with for this one. I started with $100/paycheck to get my emergency fund up to $1000, and then stopped contributing to that until I have my credit cards paid off. Even just $25 a paycheck will add up over time and it’s important to have some money set aside so that if something comes up – like a car repair, an accident, a ticket, a medical bill – you have some money set aside so that it doesn’t derail your entire budget and progress.
3.) Call your credit card companies.
Pick up the phone and do this now if you’re working with credit card debt! Stress that you’re trying to get in good standing but the interest rates are keeping you from making a dent in your balances. Ask them directly to reduce your interest rates, and you may have to call several times and talk to different people. It can only help. I was originally at a 24.99% APR on my Bank of America card, then I called and they lowered it to 20.99%. I called them again several months later to ask them to further reduce it, and they wouldn’t, so sometimes you have to be persistent. I would have called them again if I didn’t transfer every last drop to another card because I was so angry at how unhelpful they were.
4.) Open up new lines of credit with lower/zero interest.
Mint.com makes some great recommendations on 0% APR cards that you can open to transfer you balances to to save money. There is usually a one time 3% charge for balance transfers, but its way lower than the amount of interest you’d accumulate over time. This is only usually an option if you have kept up with payments on outstanding debts, which I was lucky to have almost always done. I opened up one new card and transferred nearly all of my debt from the BofA card to it, and I have 0% APR for 12 months. This is great because I’m looking at it as a challenge to be able to pay it off in time, and will just continue to make the minimum payment on it until my other card is paid off in full (hopefully next month!) The best ones I’ve come across are through Chase Freedom (the one I opened) and CitiBank.
5.) Go on a cash only spending policy or open up a new checking account for spending if you have trouble sticking with your budget.
Hello, I spent my way into $11,000 of credit card debt – I think this category is where I fall. I tried the cash only spending thing, but it honestly didn’t work for me. I’d run out of cash and then just use my debit, really undoing the whole process. While cash only can be good for some, I found that opening a second debit card for spending was the best thing for me. Every Friday, I transfer $150 into it, which is how much I use for groceries, spending, incidentals, going out, etc. I’m being very strict right now because I really want to get out of this debt as fast as possible, but I will probably up it to $200 a week once I’m out to have a little more freedom. Once its gone, its gone until the next Friday, and it actually makes being able to say “No” a lot easier.
Sooooo that’s “it” for today. I think the bottom line for me was that I finally came to a point where I realized hiding from my finances wasn’t making the situation any less real. I thought that looking honestly at my finances and sticking to a budget would make me feel VERY restricted and unable to breathe financially, but the truth is, finding out where my money was going and taking steps to getting out of debt is SUCH a freeing feeling. While I am limited in the amount of spending money I have now, knowing that all my bills are taken care of and that I can use the extra for whatever I want makes me feel much freer than I felt when I was drowning in debt.
Do you use Mint.com? Love it or hate it? What’s the best thing you’ve discovered from using it?