Credit and Debt Blog

You notice that your credit card debt has stayed about the same. You rarely make purchases on your cards anymore but the balances seem to be about the same. Then you wonder what you would do with that extra $200-400 each month if your debt was paid off. Here is how you can eliminate your debt in 1 year.

Since the average household has over $9,000 credit card debt, we will make an assumption that you have $10,000 in debt for this example.

Cut Unnecessary Expenses

First off, you need to clear out some room in your budget so that you can aggressively pay off your debt. That means examining everything that we call “leakage.”

• $60 Annual Savings: Start with that cell phone insurance that you pay $4.99 a month for even though you still have to pay a deductible to use it. Cancel it and save your old phone in case you break or lose your new one. Chances are, you would only need to wait a few months before you came eligible for an upgrade.
• $160 Annual Savings: Install a programmable thermostat if you own your home. These allow you to lower your average monthly electric bill by 10-15%.
• $625 Annual Savings: Take a can of pop to work and brew your own coffee in the morning.
• $144 Annual Savings: Scale back your cable television to avoid paying for extra channels that you rarely watch.
• $1,250 Annual Savings: Brown bag it 3 days a week and eat out twice.
• $200 Annual Savings: Ask for lower interest rates on your credit cards. If you have good credit, they will normally give you a couple points reduction.
• $75 Annual Savings: Consolidate errands, properly inflate your tires and ease up on your acceleration in traffic.
• $700 Annual Savings: Take 10 minutes each week to clip coupons from the newspaper. Look for supermarkets that double or triple coupons.
• $800 Annual Savings: Get rid of that storage unit. Do you really need to spend $2,400 to store $500 worth of furniture for 3 years?
• $500 Annual Savings: Stop throwing money away on lottery tickets. Remember the “Poor Tax” from Monopoly?

You may notice that although we left out many other possibilities for cuts, there is a total reduction of $4,514 in annual expenses. Congratulations, you have been able to cut your debt by over a third just by making some modest adjustments to your budget.

Increase your Income

Working full time takes its toll on your body and your mind. If you are no longer single, then you are also sharing your free time with your family. This limits your additional income opportunities. There are however ways to bring in more money.

• $1,000 Annual Income: Seasonal jobs can provide a quick burst of income without the long-term emotional drain. Suck it up and make a go of if for a month or so. It helps if your second job is something that you take an interest in.
• $5,000 Annual Income: Working in a restaurant as wait staff or host/hostess has many income possibilities. Tending a bar can bring even more money. Keep in mind there is a wide range of income here. A small coffee shop catering to breakfast for senior citizens may only generate around minimum wage. However, if you have excellent social skills or a sales background and are able to work in a ritzy establishment, you could easily bring home several hundred dollars working just one or two nights a week. Again, it must fit within your lifestyle to make it work.
• $400 Annual Income: Clean out your attic and sell those things you no longer need. Those old Atari and Nintendo games are actually sought by some people. Baseball cards and other collectibles can also be valuable. A yard sale or Ebay auctions can help you unload that junk. Even consignment shops pay cash for last year’s fashions.
• $7,000 Annual Income: Sure most employers have cut back on overtime. However, many employers have begun allowing overtime rather than risk overhiring to meet short-term supply needs. Healthcare jobs often still have overtime options available.

Strategy for Eliminating Debt in 1 Year

As you can see, there are many obvious and not so obvious ways to reduce your expenses and increase your income. Now that you have found out how to free up funds to pay your accounts off, you need a strategy to focus on.

• Identify your Target Account: Make your first priority paying off one account. If you need a little victory,  then choose the account with the smallest balance. If you are in it for the long haul, then select the account with the highest interest rate. It is important to note that you still have to pay slightly more than the minimum payments on your other cards to avoid “slow pay” classification. Follow these strategies to lower your interest rates.
• Keep Accounts Open as you Pay them Off: Closing an account almost always lowers your credit scores. Keeping them open will help you maintain account tenure as well as reduce your credit utilization rates.
• Maintain $500+ in Savings: Unexpected expenses will happen. Failure to maintain an emergency fund will cause you to charge new items and backtrack in your progress.
• Apply Tax Refunds and Bonuses: You should expect to apply at least 2/3 of these funds towards debt repayment. The rest can be used to shore up your savings and to have fun.

Most consumers have the means for getting rid of credit card debt if they make some changes. These options can quickly eliminate $10,000 in debt within a one year timeframe.

If you find that you are already doing many of these things and are still having trouble managing your debt, then you might need help. Talk to an Accredited Credit Counselor today to find out how they can help you eliminate debt in 3-5 years.