Being in debt can be a super stressful experience!
No matter what your current financial situation is, if you signed for a loan, you are obligated to pay it back even if you have a major life changing event like losing a job or getting a divorce. Many people try to get out of debt, but life slaps them in the face hard enough that they usually give up. That doesn’t have to be the case with you.
The last recession led to much higher rates of unemployment and also under-employment. Because of this, many people needed to rely on credit cards to meet all of their financial obligations and pay for emergencies that arose. While this may have been a good short-term solution, many now find that they have an insurmountable amount of personal consumer debt, which comes with high-interest rates and unaffordable monthly payments.
While it can seem difficult to do so, almost everyone can get out of debt if they follow a few different tips and really make the effort. It will take hard work and lots of discipline, but it is possible.
Here are a few debt relief suggestions that might work for you:
Tip #1 – Be Prepared and Well Organized: The first tip to follow to help you get out of debt is to categorize your payments. As a general rule, you should stack your debts in order from the highest interest rate to the lowest, regardless of the balances. When making payments, you should always make more than the minimum payment on all of your bills each month. Anything extra that you have should be used to pay down the highest interest rate debt first.
Tip #2 – Budget and Make Lists: Another tip that should be followed to get out of debt would be to set up a personal budget. While many people go into debt due to financial difficulties that were out of their control, everyone ultimately got into trouble because they routinely spent more than they earned. You should set up a very detailed budget, which includes all of your fixed expenses and realistic provisions for spending money.
The budget should also include a reserve to pay down your outstanding debts more quickly, which will ultimately save you money. Once the budget is established and written down, it may be clear where you have historically been over-spending, which may make it easier to find ways to cut back.
Tip #3 – Make a Plan and Stick with it: Once you know how much money you can apply to your debts each month, start prioritizing them. First, calculate the minimum payment you need to make on each of them. If you are not able to make the minimum payments, even after exploring downsizing on some of your essential items, you’ll need to take a few additional steps to get out of debt.
Use free online tools to help you stick to your plan each month. Free online budgeting tools such as Mint.com or OnlineBudgetAdvisor.com are extremely helpful, and they let you categorize spending and make budgets easily, which is always helpful in sticking to your getting out of debt plan.
It’s important that no matter what plan you decide to go with, the important thing is that you stick to it. It might be easy for the first week or two, but it will get a lot harder after that. Especially around the holidays when people want to forget about their budget all together to go out and buy gifts.
Tip #4 – Stop Borrowing Money and Using Credit Cards: This one should maybe even be Tip #1 because it’s very important. You can’t get out of debt if you keep using your credit cards or borrowing more money. That’s probably how you got into debt in the first place. If you are serious about getting out of debt, then you need to stop using your credit cards right away. You can cut them up if you want, but don’t close them all at the same time because that could have a slight negative effect on your credit score. Just make sure you are not accumulating any more debt while you’re busy trying to pay off the debt you already have. Check out this article about how to stop using credit cards: http://www.keeperofthehome.org/2012/01/yes-you-can-stop-using-credit-cards.html
Tip #5 – Monitor and Make Adjustments: Once your plan is set, don’t get too comfortable. You’ll need to track your behavior closely to make sure you’re making progress, and you’ll want to make adjustments when necessary. You might have to tighten up your budget for certain months that require you to spend more on utilities, gifts, house repairs, etc. Monitor your credit report and credit score each month to see how it’s changing. As your credit score begins to improve, you might want to reconsider balance transfers or other ways to save money while paying off your debt.
Tip #6 – DIY Debt Reduction Option: Another tip that should be followed to get out of debt would be to negotiate with the creditors. Most creditors are willing to work with their customers as it helps to ensure that the debt will eventually get paid. By simply calling a creditor, which can include a bank, credit card company, or any other creditor, you could negotiate your debt and make it affordable a number of different ways. You could receive a more affordable payment by either receiving a reduction in your interest rate, an execution of an affordable repayment plan, or even partial forgiveness of some of the money that you owe.
Tip #7 – Credit Counseling: A session will educate individuals about their current financial situation, show them some ways to repay their debts, and teach them how to better manage their personal finances. A counseling session is always customized to that particular person’s unique situation. Whether you decide to take your session over the phone, online or in-person the session is always free, confidential, and secure. You provide some information about your income, living expenses, assets, liabilities, and debts. This information will be used to evaluate your situation, create a realistic budget, and offer some tips and advice to help you manage your finances.
There are many benefits to completing a counseling session. Even if you are not in debt it could help you with proper money management, set you up with a realistic household budget and much more. If you are in debt it can feel very overwhelming, and having someone to help you can be priceless. Credit counseling will let you analyze your financial situation and come up with a game plan. You should leave feeling more organized and in charge of your financial future. Click Here to find out more about credit counseling.
Tip #8 – Debt Avalanche vs. Debt Snowball: You may be wondering where to focus your efforts and which card to pay off first. Some financial experts believe, when attempting to manage your debt, you should aim to eliminate the card with the highest interest rate first (Debt Avalanche Method). While this method is very effective, if the card with the highest rate also has the highest balance, it may take over two or three years to make a dent in the balance, leaving you feeling like you’re spinning your wheels and getting nowhere.
However, if you start with the lowest balance and disregard the interest rates altogether then that’s the Debt Snowball Method. By focusing your efforts on eliminating the smallest balance first and gradually moving on to your higher balances, you will see results and a “light at the end of the tunnel” much faster. Check out this article to find out more about each method: https://www.creditkarma.com/article/how-to-pay-off-your-debt
Tip #9 – Debt Management Program: You have to go through a free credit counseling session before you can sign up for a Debt Management Program. If you choose to sign up, you’ll need to fill out some paperwork to get started. After the agency has received all of the signed paperwork back, they will prepare proposals to send out to all of the creditors. A proposal is a plan or suggestion between you and your creditors to reduce your payments, lower your interest rates, and possibly waive associated fees. This proposal will “propose” new payment terms to your creditors so that it’s something you can afford to pay every month.
Once the proposals have been accepted and approved, you will have to decide on the form of payment you will be sending to the credit counseling agency each month. When you begin making payments to the agency, you’ll be relieved at how nice it is to just send out one monthly payment to one place. You can get out of debt typically within 3 to 5 years. Click here to find out more info about Debt Management Plans: https://www.advantageccs.org/services/debt-management-program
Tip #10 – Debt Settlement: Debt settlement is usually considered to be very risky. Some experts who have studied the debt settlement model cannot even agree that it is legitimate. Using this approach can actually lower a borrower’s credit score by 50 to as much as 150 or even 175 points. Even one missed or late payment can cause a negative credit report to remain on the borrower’s credit history for up to 7 years.
Debt settlement companies can have many fees which can make a deal unattractive for both the borrower and the claimants. Upfront fees are not supported by the Federal Trade Commission, but debt settlement companies charge them anyway or they tack on a huge fee when you are finished with the settlement.
These companies have also been known to keep your money in their accounts and wait until it’s a large enough sum to settle with the creditors. This is horrible because while they are collecting your money, they are not paying the creditors and those creditors will report to the credit bureaus that you’re behind on payments, and may even send the account to a collection agency. This will all have a terrible effect on your credit report.
Tip #11 – Debt Consolidation Loan: Debt consolidation typically involves taking out a lower interest loan to pay off multiple high interest secured or unsecured debts such as credit cards. The lowest interest rate consolidation loan is generally secured against the borrower’s assets such as a home or a car. Because credit card debts have such high-interest rates, even an unsecured consolidation loan can significantly reduce the borrower’s monthly payment. With so many people upside down on their mortgages these days, using your home may not be acceptable security. You are basically just moving the money around. You are taking out another debt to pay off your existing debt. When you think about it that way it’s not good. You can’t pay off debt with MORE debt!
Tip #12 – Bankruptcy: This one has a bad stigma associated with it, but for some people it makes sense and can really help them. It just depends on how far into debt they are, and if there are any other options available to them such as a Debt Management Program they may be a better fit. Bankruptcy is not a decision to be taken lightly. It does come with a few grievous consequences, such as remaining on your credit report for seven to ten years. A certified credit counselor and/or a bankruptcy attorney can help you find out what your options are and help you decide. Declaring bankruptcy could save you from losing your home, your vehicle, and other belongings that are important to your family. But it should really be thought of as a last resort after you’ve tried other debt relief options.
Conclusion: Getting out of debt will not be easy. You didn’t get into debt overnight and you most certainly won’t get out of it overnight either. There are several options and avenues that you can take, but it all comes down to patience, persistence, discipline, determination, and hard work. If you would like to speak to a certified credit counselor for free about your debt relief options, give us a call at 866-699-2227 or fill out our online contact form and someone will be in touch with you as soon as possible. We’ve been helping people become debt-free since 1968 and we can help you too!