Updated on 10.31.06

I’m In Big Financial Trouble – Where Do I Start?

Trent Hamm

Several months ago, I sat down with my finances and took a good hard look at things. I was in approximately $10,000 of credit card debt spread out over three cards, and that’s not counting my student loans or vehicle loans. I also had no money in savings and – even scarier – I wanted to buy a house within the next two years, even though my finances were screaming “no way!”

It was very intimidating to look at my finances in this way, and it made it clear to me that I needed to make some major changes in my spending and saving habits.

The first thing I did is I made a list of every single thing I had to pay out each month using Microsoft Excel (you might want to use Google Spreadsheets; it’s free and quite useful for tasks like this one). I made four columns: the name of the bill, the amount of the bill, whether it is essential or not (I used “Y,” “N,” and “?” for this one – and I used “Y” for any bills that were loans that I couldn’t just cancel, and I used “N” for non-essential things like my cell phone and Netflix), and if it is a loan, what the percent interest is.

I went through every one that was non-essential and asked myself if I really needed this service or not, or if I could get a reduced plan. I wound up cancelling several services (Netflix; a web hosting service I wasn’t using; World of Warcraft) and reducing several others (a smaller cell phone plan; a reduction in my cable package). In the end, I cut my monthly spending by almost $200, money I could use to help myself get out of debt.

I then went back to my essential bills and looked at the loans carefully. My goals were to reduce or eliminate these while getting some padding in the bank. I decided that my focus should be on paying off any loans that were more than two percent higher than what I could earn with an ING savings account, then I would begin putting a set amount into ING each month and pay off the remaining loans at a rapid rate. I had three credit cards with an interest rate over 10%, so I decided to direct that extra $200 each month into paying those off immediately, starting with the one with the highest rate.

It only took a few months of dedication to this and the balance on my first one vanished, so I was able to remove a bill from my list and dedicate even more to paying off the other credit cards. Thanks to the spreadsheet (and many of the other things suggested at The Simple Dollar), I am now free of credit card debt.

The first step is simply sitting down and being honest with yourself: you’re drowning in debt, but you also have the power to pay it off.

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  1. You don’t say what your credit score is like, but have you considered applying for some new credit cards that offer 0% balance transfers? This would allow you to save some money and pay down your credit card balances sooner since you wouldn’t have to deal with that 10% credit card interest.

  2. Trent Hamm Trent says:

    I managed to actually keep my bills paid pretty well even through my financial crises, so my credit score survived well. Transferring my balance was one piece of the puzzle of escaping, but the first and hardest piece was really switching to the appropriate mindset to do it.

  3. Mukesh says:

    I understand how you reduced non-essential expenses, but in your essential expenses, aren’t you considering food, gas, utilities, clothing (other than your loans)… if you did, how did you pay for them without increasing your dept on your credit card? Did you just simply pay with cash 100%?

  4. Trent Hamm Trent says:

    I paid cash 100% for essential expenses. I refused to incur any debt at all while in this stage.

  5. Leanne says:

    I agree with cutting non-essentials. The easiest way to stay out of debt is to stay away from credit cards. I pay 100% cash for everything, including going out to eat. If I can’t pay for it then, then I don’t need it. I raise a fzmily of 6 (1 in college) on $24,000 a year. Its not easy but it can be done.

  6. David says:

    For people who really need financial help, that are really in trouble, check out this site, and click on the “Who Needs One” for one tool to survive financial problems.



  7. mac says:

    If you pay $200 every month to pay off the $10,000 credit card debt, it will take about 4 years to eliminate it. How did you manage it in only a few months?

  8. Ashton says:

    I never want to be in credit card debt. But $10,000 isn’t that bad. I have $8,000 left on my student loan. Just a few more years and it is gone!

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