Digging Out of Debt On $115 Dollars a Week.

Hey Folks,

Last night I found myself in a chatroom that I frequent on occasion. I started up a conversation with a guy I’d gotten to know there. After a while I started talking money with my buddy. I was shocked when he told me about his situation. It came out that my on-line buddy was divorced, had two children, and owed over $24,000 in credit card debt. He was living with his girlfriend and her two children. After recently being laid off from a good job (he lives in the midwest), he figured that his take home was around $115 dollars a week. Yep you read that right, about $115 dollars a week.

Now, I don’t know what your personal finance situation is, but having about $115 a week take home can severely constrain anyone.

So, what can someone in my friends situation do to dig his way out of the debt?

First, get some savings. My friend has almost NO savings. One thing he’ll want to do is build up an emergency fund. If you’re in a situation where you have almost no cash – and 115 bucks a week qualifies – you’ll want an emergency fund for several reasons. First, an emergency fund will keep you from having to borrow if an unexpected expense strikes. This means you won’t have to rely on credit cards. Second, savings can help provide some psychological motivation and act as a confidence booster. My friends situation obviously makes him a bit depressed. Its important to attack your debt with confidence and money in the bank is a great confidence booster.

Second, sell some of your stuff. By this I mean that most people’s houses are full of junky things we have accumulated over our lifetimes – boxes, picture frames, books, etc, etc. All of these can be sold online or better yet at a flea market or garage sale. Usually if you get enough stuff half a days work can bring in $100 to $300 dollars. This cash will help with building up an emergency fund and will juice your later debt repayment.

Third, my friend must pay off his credit card debt. I’ve been observing the credit card industry for a while now, and last year I reached the conclusion that the industry is essentially predatory in nature. If you get involved with the card companies they will do anything legal or possibly even illegal to squeeze the maximum amount of revenue out of you. Don’t be under any illusions. Credit card companies do NOT care about you. They only want your money. If you don’t believe me, click here. Not only are card companies predatory institutions, they also charge you a lot. Sometimes effective interest rates can be up to 240% if you carry a small balance. So, my friend has got to pay off the credit card debt ASAP.

There are lots of ways to address the debt. We recommend attacking the most expensive cards first using a divide and conquer strategy. What you do is get the plastic with the highest interest rate and transfer some it onto another card. Preferably the card you transfer it onto will offer you a 6 month zero interest rate. Transfer as much as you can, then pay off the rest of the high interest rate balances. Keep doing this until everything is on a zero balances, then pay the balances off as soon as possible and close all but one of the accounts.

Fourth, get some side income. My friend spends a lot of time gaming online. Computer games are not as stigmatizing socially as they used to be, but they take a lot of time that could be going to side businesses. There are often odd job opportunities, law mowing gigs, or similar small business activities that my friend could be doing rather than playing games online. Also, he probably should consider getting some mutual funds or stocks that pay income monthly.

Just to wrap this up, despite the recession, the US is still the worlds largest economy for a reason. There is a tremendous amount of economic freedom in the States and if you are in a similar situation as my friend, I want to affirm that you can get out of debt. It can be done, but it takes work and effort.

Best,

James