This isn’t a new years thing, just a … “fuck, I need to get a handle on this” thing. And I’ve been working on this for a while anyway.
I currently have more debt than my income can really handle, so I’m making an effort to fix that. I’m not going to list numbers, but let’s just say that it’s infinitely more debt than I should have, and most of it is way more high interest than it should be.
So, there are two common theories to getting debt paid off. One is to pick the highest interest debt and pay that one off as fast as possible. The other is to pick the smallest balance and pay that one off as fast as possible. (Theoretically, I could try to get my credit line increased and pay off with everything with that, but … I’m not convinced that getting MORE credit is the solution to my problems.)
Anyway, because I’m all about instant gratification and the satisfaction of “one less debt” will always make me feel better, I’m choosing the method.
So, I sorted out all my various debt, and in order I have…
1. Sears credit card
2. Overdraft on Royal Bank account
3. LoC on Vancity account
4. Visa
5. Mastercard
I’m proud to say, that as of about 2 minutes ago, #1 on that list is no more. Suck it, Sears card. I don’t owe anything to you anymore.
Everything else is up to date, and of course now I can barely afford to pay attention, but I’m bloody happy that at least ONE of my debts is no more, and now I can concentrate on the other 4. As soon as the overdraft on my RBC account is paid off (which, technically, it is every time I get paid, but then I dip back into it right away again) and I can get Vancity to give me immediate access to my cheque deposits (or, I can suck it up and deposit my paycheques at the teller) then I cancel the RBC account and start working on getting my LoC down, while just making minimum payments on my credit cards.
Anyway, I also plan on rewarding myself for paying off my debts. Each time I hit a zero balance, I treat myself to something nice, within reason — obviously, if I pay off a $500 debt and then go spend a thousand dollars on something pretty, this isn’t helping my debt situation.
For example, when my visa is paid off, I’m buying myself a rock climbing membership. When my mastercard is paid off, I’m thinking that trip to Cuba is in order.
But I’m not sure what to do about my Sears bill. It’s at zero! I’m so freaking proud of myself! But now… what do I do about it?
I need to think of a small way to reward myself for getting rid of one of my debts. I’m considering spinning classes.
One thing to remember is that once you pay off your Sears card, and if you have no immediate use for it, cancel it. I opened an account years ago to get 10% off nylons (worked retail at the time where it was required), and then paid off the balance and sat on the card for about a year.
Got a shock last year when getting a mortgage they said my credit score was fantastic…except. Stupid Sears card. Did you know that each credit card you open that you don’t use, counts against your credit? Yeah. Sears can suck it.
I’m torn on that — I might use it. Granted, I don’t ever want to use it again where I don’t pay it off immediately, but … I dunno, part of me is reluctant to cancel it. It’s got a very low limit, so it’s hard for me to get into trouble with (unlike my mastercard… ugh) but sometimes it is handy to have around.
Krysten’s exactly right. Any line of credit or credit card you have open counts on your credit record as if you have spent right up to the limit (because, theoretically, you could at any time).
You may want to consider going to your branch and asking them about a consolidation loan. Besides being simpler to administer (one automatic withdrawal a month) you’ll do much better on the interest rate.
I’ve been down the consolidation loan route before — I’d prefer to avoid it if at all possible.
And really, my credit score is pretty much irrelevant at the moment. I’m not trying to get more, or do anything that involves credit, so… *shrug* Having open cards doesn’t affect me one way or the other. I’d like to make sure everything is paid up to date, of course, but beyond that it doesn’t really affect me.
If you savings will cover all your debts, pay off your debts and start saving again. There is no investment that can possibly keep up with the interest charged by your credit cards.
I understand that it’s tough to release the “accomplishment” of saving money, but if you were running up the CC’s while “saving” you were lying to yourself. Lie to your parents, lie to your boss, but never, ever lie to yourself.
hahaha. Yeah, right. No, I’ve got a couple hundred in my savings, if that. Less, now that I have to use it to cover my car insurance this month. They’re emergency funds, nothing more. No investment, just a couple hundred of “oh shit” money.
Trust me — when I say I’m in debt, I mean it. :)
Congratulations on working to get out of debt!
I agree with the suggestion to cancel the cards as you pay them off. Better to have an emergency savings account for, well… emergencies, rather than go back to the cards. Dave Ramsey, whose solution we follow, suggests first creating a $1,000 emergency fund, and then going after the debt with the smallest balance, as you’re doing. Then, take the money you were paying on that smallest debt and add it to the payments you’re making on the next smallest one, paying only the minimums on the rest. As you go along, you’ll pay more and more to each subsequent debt with the money you were paying to the ones you’ve paid off, and the “debt snowball” will start rolling quickly.
Then, you can save (again, using the money you were paying on the debts) 3-6 months of expenses (not income) and you’ll never need to go into debt again, so you can safely cancel all of those cards.
We’re out of debt completely (except the house) next month, so I can tell you it definitely works.