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By Suze Orman
IT’S THAT TIME OF YEAR again: You make all
sorts of well-intentioned resolutions, and then
sometime in mid-February you forget about them—
not because you no longer care about making the
changes, but because you just feel too overwhelmed
about how to convert intention to reality.
I can’t help you with a weight-loss resolution,
but I do know that for many of you putting your
debt on a diet is on your short list of important resolutions. And that’s something I can definitely help
with. Here are some tips to make 2015 your debt
turning point: the year you finally took control of
your borrowing and spending.
Pay as you go
If unpaid credit card balances are your issue,
the first step is to stop using credit cards every day.
Instead, use a debit card tied to a bank or credit
union checking account, and that account should
not have overdraft protection. That makes it impossible to spend more than the money you have sitting in your checking account.
Note: I still want you to use your credit card a
few times a month, just not every day. Debit card
transactions are not part of the system that determines your credit score. Your credit card transactions are a big part of your credit score, so you need
to use a card a few times a month, and then be
resolute about paying off the bill in full each month.
That will help with your credit score.
Cut up your store credit cards
It never fails: Whenever I work with people
struggling with debt, I find that they typically
have unpaid balances on store credit cards. I get
how enticing it is to sign up for a store card
when the checkout teller promises you 5 or 10
percent off your purchase. But I also know what
a costly mistake this is: Store cards typically
charge 20 percent or more in interest on unpaid
balances. That’s higher than the average for regular credit cards.
Pull those cards from your wallet, and remove
them as a payment option if you shop online.
Focus on paying down the credit card
charging the highest interest rate
Don’t forget your existing credit card debt.
Line up all of your cards, from highest interest rate
to lowest. Pay the minimum due on all the lower-
rate cards, and pay more than the minimum on the
card with the highest interest
rate. Can’t imagine where to find
the money for that? Use the free
Expense Tracker at suzeorman.com to get a
handle on where your money is going—and
where you can cut your spending.
Once you decide on how much extra you can
send in on your highest-rate card, add 20 percent.
(Don’t “Oh, Suze” me. I do this all the time with
people who have asked me to help them take control of their financial life, and we are always able to
nip and tuck their spending to come up with even
more money to pay off credit cards.)
Once the highest-rate card is paid off, take all
the money that was going toward that card and
add it to the monthly payment for the card with
the second-highest rate. You get the idea: Focus
your additional payments on the card balance
that charges you the highest interest rate.
And once a balance is paid off, move to the
card that is now your highest-rate balance. Yes, it
will take time. But you are moving in the right
direction, and that’s what matters.
If you are overwhelmed by how to get ahead of
your debt, contact the National Foundation for
Credit Counseling ( nfcc.org; 1-800-388-2227). You
will be directed to a local credit counselor who will
help you come up with, and implement, a plan to
pay down your debt.
Make this the year you vow to be a more
focused and conscientious borrower. If you need to
replace your car and need to finance the purchase,
shop for cars that you will be able to finance with
just a 36-month loan. Anything longer is a signal
you are buying way too expensive a car.
And if you’re eyeing a home purchase that you
will finance with a mortgage, think long and hard
about buying the least expensive home that meets
your family’s needs. Every dollar you save on your
monthly mortgage payment is a dollar that can be
used to build financial security for the rest of your
life. How’s that for a resolution?
Whether it’s building an eight-month emergency savings fund or boosting your retirement
savings, the less of your income you need to tackle
debt, the more of your income you will have to live
life on your terms. C
How to keep your debt-reduction resolution