The tips below will tell you how you can reduce your debt. They are just tips and ultimately, it depends on our discipline to ensure its success. I put it down here as a reminder for me as I sometimes got overboard with my credit card spending, etc.
If you have credit cards with outstanding balances, you can do the followings:
1. Cut up all your credit cards, except 1 or 2. We still need the plastic money every now and then. So, better not cut all of them.
2. Any new charge you add to the 1 or 2 cards you now have must be paid off every month. Do not incur any further long term debt.
Come up with RM150 to 200 extra per month. Do a very tight budget and squeeze the extra money!
Apply the additional RM150 – 200 to your monthly payment of ONLY ONE of your credit cards. You will now pay the minimum plus the RM150 – 200 on that one credit card.
Once the first card is paid off, then apply the total amount you were paying each month on that card to your next card. You are now paying the minimum amount due on the second card PLUS the total monthly payment you were paying on the first card.
Continue this process with all your credit cards and other consumer credits.
Once all your credit cards and other consumer debt are paid off, now continue with your car and mortgage payments.
Now that you're completely debt free, take the monthly amount you were paying on your last debt, and put that money towards investment. Build your asset column.
It sounds simple, however it's not easy as it requires a lot of discipline and may be to a certain extent it requires a lifestyle change. I always use this principle of paying off the card with the smallest outstanding balance when I got my bonus and I cut off credit cards too. However, the challenge is to resist other debts and credit cards when your finance are back to black.