Now that we have established a savings account with $1000.00 in a separate account, it is time to start working on the next step; knocking down loans and credit cards. This is where we need to get some pen and paper; write down all unsecured loans and credit cards from smallest to largest.
We are going to work on loans first. If you are like me, I will use the available balance on the credit cards because my budget is so tight. Take the $167.00 that we have been putting into savings and since we are used to that money being allocated away from our budget; and start knocking out those loans. Starting with the smallest loan first, as you pay one loan off work on the next one and work your way down.
Depending on how many loans and balances you have, this will take a while. Be patient! Just take this step slow and steady.
When all closed ended loans are paid off we can start working on credit cards. Like we did on the loans, we are going to do the same thing on credit cards. You should start feeling some accomplishment and have some wiggle room, so paying off the revolving accounts will be easier and the temptation of using them should be easier too. Starting with smallest balance first and work our way through. As we pay off these credit cards, shred the cards but don’t close the accounts. Keeping the accounts open will help your credit scores.
You want to decide also which card you are going to keep. It should be a major credit card, like a Visa or MasterCard. The card you are keeping, you want to get the balance at 20% of your credit line. This card is going to be your tool to raise your credit score, which we will talk about later.
Hopefully at this point, your budget should be easier to follow and these steps will become easier as well.
I hope these are helping you and if you have any comments or ideas please share!