One of the main problems most people have these days is debt. In that, I’m pretty much no different, though there have been times in my life when I was for the most part debt free. Having been lax over the last 10 years, that’s no longer the case, and I’m in the process of doing something about it, since I have retirement coming more into view with every passing month of work and life. I don’t have a lot in the way of assets, the way my wife and I have structured our ‘things that have great value’, by and large they’re not really in my name per se, so I don’t have full ownership of them. We own a house (with a mortgage) and we lease our vehicle. Consequently, we don’t ever have large bills to pay insofar as car repairs, since all the vehicles that we lease are brand new, only ever get to three years in age before they’re turned in, and are completely under warranty for all the time we’re driving them. And its fully covered by our auto insurance policy.
Over the years I’ve made some really dumb decisions with money, and that’s contributed to the current hole that I’m in. Too, I have several credit cards with sizable balances, and rather sneakily, the banks that own them have been inching up the interest rates little by little, making it harder and harder to pay them off in an easy manner. Where at one time one of the lesser interest rates was around 11%, it’s now been jacked up to 13.25% and so on. My worst interest rate card is about 26%, and I’d really like to cancel that one, except it carries a balance. So while watching YouTube videos instead of doing things around the house, I stumbled upon a method that seems to have a pretty good following, as well as many success stories.
It’s called the Seven Baby Steps, and it seems to be pretty straightforward. Now granted, the originator of this system posits that the best method to start with is saving $1000 for some sort of family emergency, but I’m forgoing that since I have sufficient funds already socked away that can be accessed if there was some sort of dire need for it. The second step is what’s called the Debt Snowball approach. Listing all of your debts that have interest rates, regardless of what those rates are, just list the debts from lowest to highest in terms of balances. Start paying off the lowest amount first with as much as you can afford to throw at it, remembering to pay off the other debts with the minimum payment. Once the first one is paid off, add the amount that you were putting towards that to the next one in line and keep going until your debts are paid off. It doesn’t say anything about cancelling credit cards, since every one you cancel has an effect on your credit score. So you need to be careful about that.
For the past several years I’ve been maintaining a database with my credit card debts so I can keep track of what the interest rates are, when they’re paid every month, balances, and so on. I’ve steadily been able to put about $1000 towards the debt every month from what I make, but it hasn’t been doing very well because I’ve been torpedoing my efforts through spending on frivolous things, lending people money and so on. Which just means I need to get a little medieval with my spending, with my saving and with my dedication towards getting out of debt, not adding to it! I have to admit I’ve tried a similar sort of plan for the last year or so, trying to pay off the higher interest rated card first, the so-called Avalanche method, but it’s had only limited success. Again, when I run low on my checking account balance, I tend to go to the credit cards, and generally the ones that have the larger interest rates also have the bigger credit lines. So it can be a trap of sorts, when you borrow more than you can really afford, and are paying high interest as well as putting it out over time. I can easily see how people get to the point where bankruptcy seems to be the only logical option. Large financial institutions get forgiveness easily, your average borrower, not so much.
Either way, I’ll be revisiting this issue more in the months to come.