Accumulatng debt is one of the easiest and one of the most dangerous things a person can do. You can show discipline and muddle through, but then you get hit by some emergency. The only way to deal with the emergency is to use credit. The next thing you know you have a new bill each month. Another emergency, another new bill. The whole thing can start to snowball and before you know it, you owe a lot of different creditors a lot of money. The task of knocking debt out of your life can seem daunting. The keys to taking care of the problem are discipline, patience and understanding your income versus outgo ratio.
Of course, the best way to be debt free is to always remain within budget. Obviously, this is easier said than done. Most people with a modicum of common sense won’t take on unnecessary debt unless there’s an emergency. Unfortunately, the emergencies never seem to stop. When things have gotten out of control, it is time to take pencil to paper and figure out a workable budget that allows you to erode the debt, but maintain a certain living standard. There are a number of ways to tackle the problem. I will address three of the methods that are most common. Two are similar to each other.
If you watch a lot of TV during the daytime, you have undoubtedly seen the ads for bankruptcy lawyers. Choosing bankruptcy is one method to try to eliminate debt. It would be easy to say that this is the least-preferred method, as bankruptcy can stay on your credit report for up to ten years. It is not a method I would necessarily choose, but I understand those who do. Some people feel they have no choice. The positive aspect of bankruptcy is, you are often left with no, or at least substantially reduced, debt. A repayment schedule for the debt not forgiven will be drawn up by the courts and you will be expected to adhere to the schedule. While this will substantially reduce your monthly outgo, it does come with a price. You will have to pay your attorney at least something and, you do have that black mark on your credit report. It’s a matter of what’s most important to you.
Another method one can use is a credit counseling service. This will not eliminate what you owe. When you come to one of these services, they will take a look at your bills and figure out for you a manageable repayment plan. Most will actually take your bills from you and pay on the bills, while sending you one monthly bill to offset what they pay out. This is convenient for you as you only have one bill to worry about. There is no juggling. On the downside, these companies are going to have to charge a fee so they can stay in business. For a lot of people, the thought of one bill is enticing and the fee is a small price to pay. Of course, you have to make sure you pay on time each month for the one bill. This method will take a little longer to pay down the debt, but it should not effect your credit report negatively.
The last method discussed here is the do-it-yourself method. If you have the discipline, this method can work the best for you. You won’t be paying extra (save,for the interest that continues to accrue, but this will happen anyway). You’ll be helping your credit score. And, eventually you will knock out the debt. This is how the method works. Let’s say you have three bills you have to pay on each month. Bill A runs you $75 per month. Bill B accounts for $100 of outgo and Bill C costs $150. If you pay the minimums on all three bills, you have an extra $200 (after rent/mortgage, utilities, food and other ordinary expenses). If you can maintain the discipline, you throw an extra $100 towards one of the bills. Most people start with the bill which is owed the least. This will pay the debt off quicker. So, for Bill A, you are now sending in $175 per month instead of $75. This curtails the amount of interest accruing and the bill will be taken care of much more quickly. Once paid off, you take that $175 you were spending and throw it at Bill B. Now, instead of $100 per month towards Bill B, you are sending $275 per month, with the freed up disposable income. When B is paid off, you throw everything at Bill C. Once the first of the bills is paid off, you will see that the others’ debts will be reduced much more quickly thasn you’d expect. As stated before, this requires great discipline and, of course, as other emrgencies arise, you have to make adjustments. Still, if you can stay within this budget, you can eliminate debt fairly quickly and actually help your credit score. Again, all these things are easier said than done.
When all is said and done, the best way to be debt-free is to avoid debt to begin with. Once debt accrues, it has a tendency to snowball quickly. When things get out of control, the best steps to take to become debt-free are to maintain discipline, patience and understanding where the money goes. Following these steps, you can become debt free quicker than you think.