Many consumers are struggling to keep their heads above water. Total outstanding U.S. household consumer debt currently stands at $3.7 trillion, according to the Federal Reserve. Wrestling with debt for years without success might cause you to lose hope and think you’ll never see the light at the end of the tunnel. However, with the right plan in place, you can keep your debt under control and even wipe it out for good.
The Cheat Sheet sat down with Beverly Harzog, credit expert and author of the book The Debt Escape Plan: How to Free Yourself from Credit Card Balances, Boost Your Credit Score, and Live Debt-Free, for tips on how to break out of the perpetual jail of debt. Here’s a peek into our chat.
The Cheat Sheet: What inspired you to write this book?
Beverly Harzog: I got a lot of emails from readers saying that they loved my book, Confessions of a Credit Junkie, but they wish they’d read it before they got into credit card debt. This was a common theme. I also noticed that consumer debt was rising again. This seemed like the right time to publish a book about getting out of — and staying out of — credit card debt.
CS: What is a debt escape plan and what are the key steps in this plan?
BH: The first step is to put your budget together. Then it’s time to go through each item line by line and see if you can eliminate an expense or at least reduce it. I have free worksheets on my website that people can use to play around with the numbers. The amount of reduced expenses (and any extra income found) is your Debt Escape Number. This number is added to your target debt. You determine your target debt when you choose a payoff method. Now, if you only have debt on one card, then that’s your target debt. But many people have debt on multiple cards.
CS: What are some effective debt-payment methods?
BH: I cover three options in my book. The debt avalanche method is where you tackle your debt with the highest interest rate first. This method saves you the most money. The debt snowball is where you target your smallest debt first. You pay more in interest expense, but the idea is to give yourself a psychological boost by paying off a card quickly. The debt blizzard is my own creation. With this method, your first target debt is the smallest balance so you get the quick emotional boost. Then you switch to the highest interest rate for the next debt. So you start as the debt snowball and then you switch to the debt avalanche. This way, you get a quick boost and then use a method that saves you the most money.
CS: Why are so many people mired in debt?
BH: Consumer confidence has been on the rise. That’s good for the economy, but it’s not good for your wallet if you put more on your credit card than you can pay off. I also think there’s a big emotional connection when it comes to money. In my case, I spent money on designer duds to feel better about myself. I was in a cycle of buying clothes and shoes in an attempt to boost my self-confidence. I was able to stop spending when I got to the root of my credit problem. Until people identify their spending triggers, it’s hard to stop that cycle of buying things and ending up in debt.
CS: What’s the key to staying out of debt for good?
BH: You have to identify your triggers. Once you know why you spend, you can work on it. For some folks, it’s simply lack of structure. Once they get a budget in place and track spending, they’re in a good spot. But for some, they’re like me and need a little more insight into their behavior to stop spending.
CS: What do you want consumers to take away from this book?
BH: One of the things I know from my own experience is that when you’re in credit card debt, you feel awful. You feel alone and like you’re the only one who has made such terrible money mistakes. I want people to know that this can happen to anyone. And I want them to also know that they can get through this and pay off their debt.