6 Tips to Get a Handle on Debt

October 11, 2012
Originally published on USAA.com

The federal government's search for a solution to its mounting debt burden continues to dominate the news. It also has prompted many Americans to scrutinize their own budgets.

A Dose of Reality
"The nation's debt situation has been a good wake-up call," says Scott Halliwell, a CERTIFIED FINANCIAL PLANNER™ practitioner at USAA. He says nearly a third of the questions he receives from members in Ask USAA with Scott Halliwell are about credit or debt.  His message is simple: Just because you can borrow money doesn't mean you should.
"Live your life in a way that minimizes your need to take on debt. That means living on less than you make and — when debt is necessary — using less of it than lenders are willing to give you," says Halliwell.
That's something USAA member Nikki Tracht learned the hard way. Just seven months ago, her family's debt had climbed to nearly $350,000 — not counting the family’s home mortgage. So she and her husband sat down and created their first budget ever.
"We've been married almost 10 years, but we had never made a point of figuring out where our money was going," Tracht admits.
But they didn't just make a budget, they stuck to it. And after just seven months and the sale of an unprofitable rental home, the couple's debt is down to $131,000. And with more than $30,000 of their personal debt paid down since last October, their "debt ceiling" continues to fall.

Strategies for Balancing Your Budget
We spoke to USAA members across the country to come up with a half dozen real-life ways to lower your reliance on credit and strengthen your ability to pay down your debt.
1. Spend extra money on credit card and loan balances. Tracht calculated her family's household necessities and now applies any leftover money toward bills. "The first time you pay something off, when you're actively trying, is just a fantastic feeling," she says. "It's like, 'Why have I been holding on to this bill forever?'"
She makes minimum payments on all bills except the one with the lowest balance; all the money that's left goes to that. Each summer, when her kids head to grandma's house, she takes the money she normally would spend on daycare and pays down her credit card bill.
2. Selling (or returning) what you're not using. Since a penny earned can be a penny that fights debt, many members report selling their surplus items online. Tracht, for example, says she recently sold a CD changer for $100 and traded an expensive truck for a decade-old Honda.
3. Freeze your credit — literally. Member Jessica Otieno of Atlanta froze her spending on frivolous items by sticking her credit card in water and stowing it in the freezer. "I figure if it's something I really need, it will be there in a few hours when I need it," Otieno says. "Put a little bit of money in a separate account, just a little bit, so you can go into that for the little extra costs — birthday gifts and so on — instead of turning to credit."
4. Lower your rates. Reducing your interest rates and changing your W-4 withholding can quickly add up. For Chad Holden, all it took was a phone call to lower the interest rate on his credit card.  And here's the bonus: Lowering your interest rates while aggressively paying down debt helps you to eliminate it even faster.  Instead of waiting for an income-tax refund, Tracht decided to make good use of that money now. "I'm adjusting my W-4s so I get more back each month to pay debts," Tracht explains. By paying more now instead of later, she's not only whittling away her bills, she's paying less in interest.
5. Take a look at your bank statement(s) for any monthly auto-debited financial commitments. Consider what you can cancel, at least until your debt is paid down. That may mean doing without storage units, gym memberships, cable, book and wine clubs, music downloads and in-car navigation.
6. Don't spend it unless you have it. Treva Tribit, who grew up in a military family, and her husband were forced to adopt this philosophy in 2007. Their newly blended family of 10 had to cut back any way they could.  She and her spouse took on multiple jobs, and "did all the couponing to try to save every dime on everything, especially groceries," she says.
They also downsized and moved to a smaller place. "We knew it wasn't forever, so we rented," she explains. "And we refinanced our one car loan to one with a lower rate with USAA during that time. We only had about $300 extra per month, but we started putting that to the side and continued living just very carefully," she says. In 2010, they had enough to buy a home.  Now, she says, they stick to the philosophy passed down from their parents: If you don't have the money, live without it.

Make Your Debts History
Apply the lessons the government is learning to your own life, advises Montanaro.
"Use the hoopla over Washington's failings to manage your own financial future," he says. "Sit down today and lay out a budget, a budget where inflows exceed outflows and outflows include saving for life's emergencies ... and your long-term goals. Develop or follow through with your plan to eliminate debt — don't increase your personal debt ceiling. Use our government's struggles to motivate your own actions."

*Photo by iDanSimpson on flickr

Tip of the Day

  • Written by Guest Blogger | April 9, 2014

    Request a free copy of your #credit report every year. It's easy and safe! Go to www.annualcreditreport.com to get yours!

Saver Stories View all »

60 Teens participate in Massachusetts Youth Saves Program

Written by Super User | November 26, 2010

During the months of June & July, 60 teenagers aged 13-19 from Marine, Coast Guard, Army, and Air Force families attended Youth Saves programs across the Commonwealth of Massachusetts to help increase their knowledge of financial literacy.

Read more...

Money on the Side

Written by Super User | November 26, 2010

Camp Arifjan, Kuwait -- A colonel in the 1st Theater Sustainment Command has money on his mind.

Army Col. George Fields, the Chief of Intelligence, or G2, has been teaching a free "Managing Your Money" class here in his spare time. More than 400 students have attended his six week-long class to learn more about increasing their own finances.

"All I did was sit down and listen to a guy one day who showed me what he was doing" said the colonel as he explained how he became interested in what he calls, "becoming financially free."

Read more...

Building Wealth by Setting Goals

Written by Super User | April 24, 2013

My name is Allison Mecadon and I’m a Youth Coordinator with the Virginia National Guard Youth Program. My husband, Tom, is an M-Day Army National Guard Member (an M-Day member is one who performs weekend drill, but is not on full-time duty).

Read more...