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How To Get Out Of Debt
consumerist.com — Jake is in a debt hole and needs help getting out. We're going to give it to him. Attack your debt like a hungry wolf. Intensity is the number one difference between those who escape debt slavery and those staring out the prison bars. You need two things, one, a method, and two, a madness.
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- DeliciousWolf, on 10/02/2008, -0/+3Here's How: Buy, Read, Study "The Richest Man in Babylon." This has worked very well for me, I'm reducing my debts, living within my means, and even now have money to invest. Pure Win.
- chrysrobyn, on 10/02/2008, -0/+3Most writeups on debt reduction don't mention the difference between the "snowball" and "highest first" methods; I've read plenty that actually say one is right and the other is wrong. Both work, as it turns out, but you have to know yourself well enough to judge your mental strength -- if you can take "highest first", you can save a whole pile of money. If immediate results are important, "snowball" is the way to go.
If you're the kind of person who has the strength to handle "highest first", I'll add a substrategy which my wife and I used to get out of debt in 1999 and 2000: Credit card introductory rates. If your highest credit card is 19.99% (which ours was, with a balance of over $1000), and you have an offer for a 9.99% credit card, it might make sense -- just watch for balance transfer fees (typically something like $50 or 3%, whichever is higher). Sometimes you can find one that will waive the fees for the first 30-60 days -- they're the bargains. Also, if you can find a card that has a low intro rate on purchases (0-4.99%), it might make sense to live day-to-day on that card while you pay down a higher rate -- just be careful of when the rate climbs out of "introduction territory". Another strategy here involves closing credit cards when you're done with them. After a year, you may be re-eligable for introductory rates again with the same companies. We used Excel to track and predict all of our balances, rates, when introductory periods would expire, etc., and got pretty good at predicting minimum payments (typically higher of 2.5%-3% or $20). Interestingly enough, we got to the point where a car payment was a higher interest rate than one of the cards -- so the car got all the spare cash until it was paid off, which was a large chunk of our budget.
We did some dumb stuff with credit cards in college, but we got out of it by properly playing the games the credit card companies used to screw us in the first place (or is that "screw ourselves"?).
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