The next step for paying off credit card debt is to prepare a spending plan so you can stop accumulating debt, and live within your means. This means if you need to buy something that is not in your monthly budget, you will need to use what's leftover from your paycheck, use your savings, sell something you don't need, or wait until you can afford to pay cash for it.Continued from: Eliminating Credit Card Debt
Rule #1: Never use retirement savings to pay off credit card debt.
Regardless of where you are in the retirement planning process, whether in your 30's, 40's, or very close to retiring, getting out of debt and paying off credit cards should be your top priority.
Managing credit well is one of the most important financial skills you can develop.
Paying off credit card debt is tough, but you can do it. You may need to change your day-to-day spending habits, and perhaps even your social life.
Start by setting up a detailed budget and tracking your expenses, ALL of them. First, list all of your regular monthly bills. Use your bank statement to look back at what you spent over the last month or two.
Then, keep a diary and write down every penny you spend that might not show up on your bank statements. As things come up, think about your past activities and put it all on your budget.
Don't forget the bills that come up once or twice per year. Set aside a portion of your monthly income to cover those, too.
Paying off credit card debt is challenging, and may require a lifestyle change. Everything you learn from this will be experience will help you with your retirement financial planning, too.
The budget and diary should show you how much money you can plan to spend each month. Work up a detailed spending plan and fine tune it as you go.
Hopefully, you will have some cash leftover after you pay credit card and other bills and buy food. Study what you recorded to see if you can make changes in your spending habits to save money. Is there something you can do differently to save money?
These tips are useful for anyone with credit card debt, whether living in retirement or just preparing for it. Look here for more financial and budgeting tips.
For example, let's say you spend $1.75 every day at work for an afternoon snack and soft drink. Could you take a snack from home and make a cup of tea instead of the soda? That's about $8.75 each week, or $35 per month. Look for lots of little changes that can really add up over a month. Use this “found money” for paying off credit card debt, or if you know you'll need to buy something in the coming months, save for it.
Next, you need to apply discipline and stick to the spending plan. If you need or want something that costs more than your spare cash, you will need to give up something else. You should get help from everyone in your household, too. It may be that everyone needs to change their spending habits.
If you have the discipline to use credit cards wisely, you can use rewards cards for your regular spending, such as food shopping, and get reward points for better vacations or cash back rewards.
The key is to pay them off immediately so you don't pay finance charges. This keeps your credit card active, too. (I sometimes make 3 or 4 payments during the month, as soon as the charges show up on the credit card account so I don't forget.)
Let's say you only have $150 left over from your paycheck after you pay all your bills and cover expenses like groceries, gas, lunch money, etc. Usually you spend the extra on movies on weekends, eating out in the evening, or new clothes.
This month, you were planning to buy new shoes that will cost $90. In the past you would simply put them on the card. But now you want to get out of debt. Here are your choices:
If things are really tight and you can't find easy things to cut, consider cutting out bigger things. (This is the lifestyle change I mentioned.)
Cancel the premium cable or satellite packages and use Netflix online or Hulu, for example.
Cancel your land line and just use your cell phone, at least temporarily until you get your budget to a better place.
If these suggestions are not enough, take a part-time job and put all those earnings towards your credit card bills. To succeed in paying off credit card debt, drastic measures are called for, before things get any worse.
And remember, this is great practice for retirement life when you will need to live within a budget.