Credit Cards - The Art of Getting Out of Debt
By Melissa Tosetti
You have credit card debt that’s stressing you out. Whether an unexpected expense or past negative spending habits triggered the debt, it’s understandable to want to throw every spare penny to pay it off. But, that’s rarely the right strategy.
Without a Spending Plan you can easily find yourself in a negative cycle of paying your debt down only to see it build up again despite your desire to get off the hamster wheel. This can be incredibly demoralizing.
When every spare penny goes to pay off debt…
1. You’re not building an emergency fund so when something unexpected comes up, you have no choice but to use your credit cards. This decimates any traction you made.
2. If you didn’t set money aside for your Intermittent Expenses such as Property Tax or the kid’s summer camp deposit, you’ll have no choice but to whip out a credit card to pay for those expenses, again losing any traction you made.
3. You deny yourself any type of enjoyment spending. This triggers “frugal fatigue,” which often results in using your credit card for an impulse purchase. You didn’t necessarily want that item, you just hit a point of being so tired of denying yourself.
So, what’s a better way to get out of credit card debt?
While we use the Snowball Debt Repayment System to create pay off plans for our clients, when it comes to permanently paying off debt, there’s a balancing act to it – an art.
This is where creating a Spending Plan is KEY! Otherwise it’s too easy to fall into one of the traps outlined above.
A Spending Plan gives you clarity for how much you’ll safely be able to set aside to focus on building your emergency fund and paying down your debt.
Through the process you identify those Intermittent Expenses that will be coming over the next 12 months so you’re not surprised by them. Those expenses are a part of your plan.
It’s also critical to find the balance of being able to enjoy life while paying off your debt. Those enjoyment expenses get defined in your Spending Plan. With that plan you’ll know how much can you safely spend on expenses such as Dining Out, Entertainment and Travel while still working toward your payoff goals.
Once your Spending Plan is created, instead of focusing all your energy on paying that debt off, you focus your attention on living within your overall Spending Plan. The Snowball Debt Repayment Plan, which is a part of your Spending Plan, is your system for paying down that debt.
Building your Emergency Fund is also part of your Spending Plan. This reduces the concern of an unexpected expense throwing you off your path.
By allowing for expenses such as Dining Out, Entertainment and Travel you find a balance and enjoy living while accomplishing your pay down goal. This allows you to build good money habits and not feel like you’re enduring punishment for that debt.
It may seem like it’s going to take longer to pay off your debt in this manner, but with your plan, it actually gets paid off faster, because you are reducing the likelihood of setbacks. You’re not being thrown off track by the unexpected – and you’re able to enjoy the journey.
Melissa Tosetti is a cash flow planning expert, founder of The Savvy Life and author of the international bestseller Living The Savvy Life.
For the past eight years, she’s worked with over 625 individuals and families to create Spending Plans.
To learn about the Spending Plan process, visit The Savvy Life’s Home Page. If you’d like to learn about how The Savvy Life works with financial advisors and their clients visit: The Savvy Life Advisor’s Page.
