How can someone eliminate debt altogether?
While it is crucial to have good credit, it is even better to simply be debt free. But to accomplish this, you must have a plan and stick to it.
Create a budget. If you are trying to climb out of mounting credit card debt, you first need to have a good understanding of where your money is going and why. Create a budget by tracking your income, knowing your fixed expenses (rent, mortgage, car payments and utility bills) and, most importantly, determining your luxury spending habits, such as shopping, dining out or other frivolous spending. Be sure to start paying off your outstanding debts, such as credit cards balances, before you treat yourself to luxury items.
Pay off one card at a time. The wisest way to get out of credit card debt is to start paying off your cards with the smallest debt first. Of course, you don’t want additional charges on the larger sums, so it is essential to meet the minimums. However, putting all your larger sums toward one card means that it will be eliminated faster, and you will therefore feel like you are working toward your goal. Eventually, the higher cards will decrease, too.
Don’t get further into debt. Sometimes, it is wise to borrow money, especially when purchasing a new home or car. Don’t buy what you really can’t afford, unless you want to run into further trouble. It may seem like a great idea to buy that new couch interest free for six months, but when paired with that new television and stereo, in six months’ time, you could be in financial trouble. When trying to reduce your debt, the rule of thumb is if you can’t pay a purchase off tomorrow, don’t buy it.
What else would you recommend to someone struggling with poor credit?
Repairing your credit takes time. The process of fixing years of bad financial habits does not happen overnight. It takes discipline, hard work and patience. But if you’re taking the right steps, like budgeting, paying off debts and curbing your frivolous spending, you’ll slowly start to see your credit scores climb. And this should evoke a sense of accomplishment as you work toward getting your financial health back.
Jerrie Cage manages Comerica Bank’s Forest-Inwood banking center in Dallas, Texas. Comerica Bank is a commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest banking company headquartered in Texas. In addition to Dallas/Fort Worth, Comerica Bank locations in Texas can be found in Austin and Houston. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.