The 4th Step To Repair Bad Credit: Pay Yourself First!
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So once you have ordered your credit bureau and started to pay off your debts, I have a real bad news for you. You will have to add another creditor to your budget. This creditor will become the most important one. You have to pay him before you pay your utility bills, before your rent and even before your eat. The good news is that he won’t charge you much at first but his interest charge is very high: that creditor is called (please insert your name here). We are not inventing anything here since that idea has been communicated through so many personal finance book that we tend to believe that everybody knows about the very first secret of financial success: Pay Yourself First!
The minimum payment should be $100 per month. You have to start somewhere and you won’t do much with $500 a year. With a little bit more than a thousand, you are in a better position to pay off your debts way much faster. At first, that extra $100 should be applied in addition to one of your credit card payment. We suggest that you start with the higher interest rate debt. |
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In order to decrease your interest rate on credit cards and loans, we suggest that you read this post about debt consolidation.
The important part of your budget is to never use “debt money” or “pay yourself first” money to pay anytime else but debts. Once your first debt is over, jump to the next one by applying the minimum payment required, plus what used to be your monthly payment on your 0$ balance credit card and your “pay yourself first” money.
This method will automatically increase the amount of capital applied to your debts and generate additional cash flow to pay off the next one. Within a few years, you should be able to overcome all your debts with this technique. However, it requires self discipline and a solid budget. The temptation is great to find ways to spend “free money” but keep in mind that your credit cards to poisoning your life and you need to get rid of them as fast as you can.
Once you pay off your debts, the “pay yourself first” should be increased (since you don’t have credit card payments to make anymore) and invest every month as a regular payment. This method will automatically take away a part of your income so you can save it for more important project such as buying a house or retirement.
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Carnival of Personal Finance No. 177 on November 3rd, 2008
[...] TCT from The Credit Toolbox suggests this way to Repair Bad Credit: Pay Yourself First! [...]