Getting Out Of Debt
Getting out of debt can seem like a dream to some people, but to others, it seems like a nightmare of controlled spending, lack of available credit and years of repayment. Do you know which category of thought you fall into? Does it really matter? If your goal is to get out of debt, you must do whatever it takes to do that. With perseverance, consistency and patience, it can be done.
The first and perhaps most critical step to getting out of debt is to stop incurring debt. That means, do not buy the new car, stay away from the one-day sales at the mall and forgo the big vacation in favor of a simple road trip. In short, do not do anything that will require you to incur debt. If you are really serious about reducing your debt, you will also save money in these areas so you can apply more money toward getting out of debt.
When you are ready to begin getting out of debt you need to make a pledge to yourself on what you expect to sacrifice in order to make the debt reduction a reality.
Getting out of Debt - The Pledge
When you have had enough and you become serious about getting out of debt, you should make a pledge. Ideally, you should write down your goals for the debt payoff and your plan for getting there. You might even format your written plan like a contract and sign it, to make it seem more official to you.
In your pledge, consider these things:
- How quickly do you think you can pay down your debt? (Use online debt calculators and payoff calculators to help you answer this question.)
- How much debt do you have? Be honest with yourself. Many people who are deep in debt really do not know exactly how much debt they have. Sometimes they overestimate their debt and are pleased to find their debt is less than they thought, but usually it is more. Face the hard facts about your financial situation because until you do that, you will not be able to crawl out from under your debt load.
- How much extra money can you allocate from your monthly expenses toward debt? That is, can you save money in other areas of your budget to apply toward debt? Can you reduce your monthly car insurance cost? Can you use coupons and save some money at the grocery store? Can you eat out less and apply the savings toward your debt?
Finally, make a pledge to yourself that you will abide by the plans you have set. At times, this might be hard, but not impossible. People do it all the time, but it does take dedication and self-control. Ask yourself if you are really ready to do this and if so make the decision to start getting out of debt right away.
After you have made a pledge to yourself that you will escape your debt load, you must have a specific plan of attack.
Getting Out of Debt - The Plan
The first thing you should do is get a credit report. Before you work on paying off debt, you want to make sure there are no mistakes on your report. Deal with those first, if there are any. Pay a few dollars more to get your credit score. A good score will tell you that although you might have too much debt, you have not damaged your credit score too much. If you score is low, just remind yourself that with each payment, you are working to improve that score. You can find your report at www.annualcreditreport.com to start the process.
Call your creditors and ask if they will reduce the interest rate for you. If you have been a dedicated and on-time payer (even if only minimum monthly payments) your creditors might extend to you a lower interest rate. Politely explain to the company that as a consumer there are many options available and you are interested in continuing business with a company that will work with you on a fair market value rate that is competitive with other offers you have received.
Consider moving some of your higher-interest balances to low interest rate credit cards. The lower interest rate ensures that more of your payment goes to the principal and not to paying the interest. Make sure when you accept a card with a lower interest rate, that the available balance is enough to cover the new balance you will be transferring on to it. In other words, if your credit card balance is $6,000 and you are given a low interest rate credit card with an available credit line of $4,000, you cannot transfer the entire balance from your current card to your new card. Be aware of balance transfer fees that could negate the advantage of a lower interest rate.
If you do accept a low interest rate credit card, make sure that the rate is going to stick for awhile. Some offer an introductory rate that will jump significantly after, say, 6 months. Be sure to read the fine print and understand how that particular credit plan works.
Cut up all of your cards except for the one that has the best interest rate. This is the one you can use in an emergency only, but remember this: Every time you use your credit card, you are adding time. It will take longer to get out of debt with each bit of debt you add. Think about any credit card purchases very carefully.
With a smart plan and your dedication, it is possible to get out of debt. Be sure to stay focused and honest with yourself. The reward of being debt free is worth it.