1. Monitor your spending
It’s time to get your budget on a tight leash.
Assuming you’ve been stuck at home during the pandemic, your lifestyle has totally changed. You’ll want to do a complete reset of your budget. For example, you’ve probably got bigger grocery bills and lower gas costs, so revise your numbers accordingly.
Not sure where all your money is going? Is it your takeout lunches? Have you signed up for too many subscriptions and memberships? Has your car become a money pit? You may want to download a budgeting app that automatically monitors what you spend your money on.
Next, you’ll want to reduce your use of credit cards whenever possible so you’re only spending money you have. Cash-back rewards and the ability to shop online are big draws, to be sure, but you can get debit cards that will do both of those things. Some will offer as much as 10% cash back, so you can actually start exploiting your purchases instead of losing money in interest.
2. Erase your credit card debt
This could be a big job, so take baby steps. Reduce your debt little by little, paying what you can with the money you’ve saved.
But first, you’ll definitely want to look into a few ways to ease your burden.
If you’re bogged down with a lot of high-interest credit, you could try a balance transfer. With a good credit score, you could qualify for a new card with a 0% APR for a set period of time. Then you can transfer your old balance over to it. You’ll still owe the same amount of money, but you’ll be able to pay it down without more interest fighting you along the way.
It also doesn’t hurt to talk to your creditors. Just pick up the phone, dial the number on the back of your card and try negotiating for a lower rate. Credit card companies are like any other; they want to keep your business. Plus, the pandemic has inspired some companies to defer payments and even pause interest for borrowers who run into trouble.
Lastly, if you’ve got multiple high-interest bills, you can save yourself a lot of money and headaches by consolidating your debt into one lower-interest loan.
You can make single monthly payments to give yourself some breathing room and save up for each pay date. Do some digging and compare different lenders online to find the offer that works best for you. You could free yourself sooner than you think with an APR as low as 5.95%.
3. Set up your emergency fund
Once your debt is in a more manageable place, it’s time to start saving and reserve some of your income for emergencies.
Even if you haven’t lost work due to the coronavirus lockdown, a layoff could still be on the horizon. And you never know when your car might break down or your cat might get sick.
A common rule of thumb is to have cash equal to three to six months of expenses on hand. That will give you time to find a new job and allow you to pay any big, unexpected bill.
While that money is just sitting around unused, you’ll want to put it to work. Hoard your cash in a high-yield savings account, which will earn you much greater interest than a typical savings account. And if you’re concerned about potential maintenance fees, don’t worry. Not all bank accounts require monthly fees, so you can decide which account suits you best.
Once you get a routine going — you may want to set up automatic deposits — you’ll hit that three to six month milestone in no time.
Then you can sit back and marvel at the progress you’ve made: from a mountain of credit-card debt to a comfortable cushion of cash.