In my earlier post, Credit Card Confessions Part 1, I told you about my recent debt development. I mentioned the feeling of being at the bottom of the pickle jar - now it's time for me to share my plan for climbing out, in the hopes that some of this information may be useful to you. How I Plan to Get Out of Credit Card Debt:
- Face the Facts First, I'm going to look at my finances line-by-line and figure out exactly how much I owe. I'm looking at a period of two months - my current credit card statement and the one after so that I don't wind up in the same predicament next month. I'll add the current outstanding balance with my essential bills and expenses to get the total figure of what I owe.Next, I'll figure out exactly how much money I have coming in (income, reimbursements from work, IOUs, side jobs).Finally, I'll calculate the difference. That's the debt amount - the part I will need to get creative with.
- Cut Back to Only Essential Expenses For the next month I've promised myself to spend only on essential items - namely bills and food - and cut back on major purchases and expensive meals wherever I can. I'm trying to be conscious of my "latte factor" spending, and as you may have read on my last post, I've also committed to a 30-Day No Car Challenge, which is saving me lots of money on gas and car expenses.After one month, and when I feel like I'm getting back on track, I can slowly (and consciously) start adding things back in. This takes a lot of self-restraint for me and it's not easy to cut back so significantly, but it's more important to me right now to remedy the situation than give-in to impulse buys.
- Generate Additional Sources of Income We've all got hidden talents. Earlier this year I wrote about the "Craigslist Extra Income Dartboard" as a way to generate some extra cash. Last year when I was in a pinch, I came up with web development tutoring and website design as ways to generate extra income. In the last few weeks I've had several people interested in my services and I haven't even re-posted yet! If those jobs don't pan out, or I still need more money, I'll post again. Tutoring in something you are good at is a great way to get some extra income. Less flexible but more reliable would be actually getting a second job. I've toyed with the idea but just don't have the time, and I can make more money on my own. Plus, it gives me a chance to teach others and express my creative and technical sides - two things I love!A last resort for me is to liquidate some of my Google stock, even though now is not a good time to sell - the stock market is incredibly volatile and continues to drop. I'm going to do everything I can not to exercise this option (no pun intended!)
- Figure Out How to Pay Myself Back Getting out of credit card debt will feel great - and that's my first priority at the moment. But knowing that I've drained my Emergency fund and my car fund (both through ING direct) in the process doesn't make me very happy. My eventual goal is to save six months' worth of living and car expenses so that I don't feel so stressed about the prospect of possibly being out of work some day. This will take a lot of commitment and planning on my part - it won't happen over night.
- Reset My Financial Goals What got me into debt was short-sighted, impulsive, blind spending and decision-making. What I know will get me out (and then some) is planning for my future and figuring out what I really want to save up for and spend money on. Saving up for things I will remember buying and doing - like traveling. When you are setting financial goals, set them for 1, 5, 10 and 20 years out. Make sure they are time-bound, specific (including numbers wherever possible) and measurable. For example, "Spend two weeks in Greece by Dec. 2009, at an approximate cost of $5,000 (wild guess)."
- Reflect on What I've Learned Life is a classroom. We make mistakes so we can learn and grow from them, and hopefully avoid the same ones in the future. Take some time to learn from your current financial situation - what are you doing well? What could you be doing better?