How to get out of Debt

Many Americans find themselves caught in a failing economy with mass layoffs and disappearing markets. Reduced incomes have wiped out personal equity balances in savings, real estate holdings, and portfolios. Individuals have been left with a mountain of secured and unsecured debt.

In a previous article titled, “When Everything Goes Wrong,” I discussed how to survive day to day when you hit the bottom financially. In this article I’m dealing with the next logical step which is financial recovery.

How does one start the long journey back to fiscal health? Here are 7 steps to financial recovery and prosperity:

1. Get your income up. Negotiating with creditors and even taking their calls is an act in futility without adequate income. It may require both spouses to work and do some extra jobs as well.

2. Establish a financial cushion. You can’t live your whole life from crisis to crisis and keep your sanity. Living on the edge is not healthy. It drains you of your energy and creativity. Once you get your income back, this step is necessary to get your mind back.

3. Make deals with your creditors. Many people don’t realize it, but creditors will negotiate debts for pennies on the dollar. Some are more negotiable than others, so start your offers low. Take your smallest bill first, and then the next largest, and negotiate the best payoffs you can and eliminate the debts. Starting with the smallest first will speed up the process and give you a feeling of accomplishment. If any are hard nosed and don’t want to work with you, put them on the bottom of the stack and come back to them later.

4. Don’t forget to pay yourself. Take a portion of what you make and invest it in stocks, bonds, real estate, or other sound investments. Establish a fixed amount such as 10% of each paycheck. You may have to cut back in other areas to be able to do this.

5. Change your spending habits. Learn how to budget and live on less. Make a list of areas that you can economize on such as housing, transportation, and entertainment. You want to make this a permanent recovery by creating as much surplus in your budget as possible.

6. Upgrade your career. This might require finishing your degree or getting technical training. Learn how to build a resume or allow a professional to do it. There are many online employment sites that you can put your resume into so that recruiters can see it. While searching for jobs online, many services allow you to immediately apply on line for the job you are looking at by emailing a resume.

7. Think long term. Upgrade insurance policies. Hope for the best, plan for the worst. Take better care of your health. Lose weight, work out, and improve your diet. Plan ahead for college for your children.

Financial recovery is a process that takes time and discipline. The most important thing to do is to get started on step one today.