Debt is a stressful reality for a lot of people. Getting out of debt can seem insurmountable, however there is hope. Instead of looking at your pile of debt and trying to fix everything at once, here is a realistic step by step plan to get out of debt as painlessly as possible.
ACCESS YOUR DEBT
Most people who are in debt don’t honestly know how much they owe. It’s easier to pretend it’s not there. Put on your game face, sit down and actually itemize everything you owe money for: school loans, car payment, mortgages, back taxes, credit card, utilities, loans, etc Once you have a concrete idea of what you owe you can form a game plan.
GET A HANDLE ON YOUR SPENDING
If you find you’ve fallen into a devil may care attitude in regards to your spending be careful. I can’t tell you how many times I’ve heard “Well, I already owe $10,000 so what will one more latte matter.” It matters a lot. Curtail your spending. Make a budget and stick to it. Take your credit cards out of your wallet if you’re a shop-a-holic and ask your friends and family to help you cut back.
WHAT IS IMMEDIATE
What debt needs to be paid immediately? If your electric bill is past due for several months and they are going to shut off your power make that your priority. If you are being threatened with eviction don’t put that on the back burner.
ANALYZE INTEREST RATES
Look at each outstanding bill. What is the interest rate? Is there a late payment? The largest interest rates are normally credit cards. Many people are tempted to pay off their smallest credit card first. Instead, check what the interest rates are. Whatever card has the higher rates; make as high a payment as you can each month. With higher interest rates, you are racking up a bill each month on your outstanding balance so it makes more sense to lower it as much as you can.
Bills like mortgages and car payments are revolving and generally have lower interest rates. This type of debt generally doesn’t hurt your credit score that drastically as long as you are making your payments on time, which brings me to my next point.
MAKE YOUR MINIMUM PAYMENTS
Always make at least your minimum payments. Even when you are focusing on paying the debt off one credit card, make sure you are still making at least your minimum payment on all other outstanding debt so you don’t rack up expensive late fees.
CONTACT YOUR CREDITORS
Although most people dodge creditors calls, it’s actually smarter to face the music. Be honest with your creditors. Most collection agencies or creditors just want their money. They are willing to work with you as long as they know you are willing to make a payment each month. Negotiate a rate that you know you can pay. Ask them to credit back past late fees or slash what you owe in interest. As long as businesses know you will pay them, you will be amazed at how much they will work with you.
ASK FOR EXTENSIONS
Much like creditors, most businesses understand times are difficult economically. If you owe for a service like electricity, phone or gas, most will allow you to pay partially to your accounts if you are unable to pay in full. By making a payment you will avoid hefty late fees and interest charges.
To recap, analyze all of your debt so you have a clear understanding exactly what you owe. Tackle all of your high interest debt first. Put the majority of your focus on one outstanding bill at a time. Negotiate with creditors for better terms, reduced rates and extensions. Curtail all of your spending and stick to a strict budget. Do not take have a devil may care attitude and do not get discouraged. By taking a hold of your debt one step at a time, you will be amazed how quickly you can start that uphill climb.
Good luck!