Mounting debt is scary and overwhelming. We are going to discuss the best ways to get out of debt and start living within your means. Whether you merge or pay off your debt over time, you can act now to get out of debt sooner than you think.
Imagine Living a Debt-Free Life. Where do You Begin?
Regardless of if you are in hundreds or thousands of dollars in debt, you can find a way out. You need to ask yourself some questions to give you a picture. What are your spending habits? Do you have a budget? Are you spending more than you are bringing in? An alarming 90% of Americans make purchases outside their means. We have become a culture that thrives on instant gratification. That can get us in trouble when it comes to our pocketbooks, as 78% of Americans live paycheck to paycheck. We are continually trying to keep up with our neighbors and end up digging ourselves deeper into debt.
First, devote an entire day to your task. Gather all your credit card statements, medical bills, loans, pay stubs, monthly bills, and expenses. You will need three columns. In the first column, include all monthly expenses such a mortgage, utility bills, childcare costs, phone bills, food, and entertainment. Add all your expenses so you have a clear picture of what you are spending. In the second column, make a list of total income that you have coming in each month. In the third column, make a list of all your outstanding balances, including the interest rate for each creditor and when those monthly payments are due. If your monthly expense total is more than your monthly income, that is the first problem. It can be overwhelming because, often, our debt list is far greater than our income list. Take a deep breath. You are not alone, and you can get out of debt with discipline and structure.
Now That We Have a Complete Picture Let’s Learn How to Get Out of Debt
Once overspending is determined, we need to assess where to cut costs. Perhaps it’s eating at home more or giving up expenses that would be considered a luxury. Even if we are forced to change our lifestyle, for the time being, the goal is to become debt-free. Once we have made a serious effort to cut our costs, look into ways we can bring in extra income. We may be shaking our heads no, but getting out of debt will be well worth it in the long run, and it can happen faster than you think.
First, create your financial goals. How much time would you like to give yourself to become debt-free? This will be different for each individual and correlates to the amount of debt we each have. We can do more and feel less overwhelmed when we have a goal in mind. Next, call each creditor to ask about lowering your interest rates. Creditors are more willing to work with you than you may think. You may be entitled to a much lower interest rate, which would drastically reduce the amount of time it will take to pay off your debt. If you cannot afford your minimum monthly payments, call your creditor and see how they can help you. Communication is key.
The Importance of Knowing My Credit Score and Paying Off Debt
Credit scores are so important. Not only do they determine whether or not we may be approved for a line of credit, but they also matter in areas we don’t even realize. Most often, if you are trying to lease an apartment, get a cell phone, or even obtain a home or auto insurance, companies will look at your credit score to determine your level of responsibility. It might not seem fair, but it is the truth. Your credit score can hurt or help you. Scores range between approximately 300-850. The higher the score, the better the credit. There are several free websites where you can keep an eye on your credit score, such as Credit.com and Credit Karma. You can also check here to make sure that you have not missed any outstanding debts that you have from the past. It is important to check for accuracy. When paying off debt, you must be aware of your score. It can also be a great motivator to see your credit score improve gradually as you pay off your debt.
You Have a Clear Picture. You Have a Goal. Let’s Get Out of Debt
There are two different ways to tackle getting out of debt, and it depends on where you stand with your income and expenses. Let’s take a look at both.
- If your income is larger than your expenses, it is easier to start paying off your debt. Once you have determined your goal on how long you would like to take to pay off your debt, decide how much money you can put towards each debt. Once you have made the phone calls to reduce your interest rates, you now need to take a look at which debt still has the highest interest rate. Focus on paying as much as you can towards this debt first while still making your minimum monthly payments on the rest of your debts. This ensures that you are not spending time paying off other debts and letting the highest interest rate continue to build. It’s also good to focus on paying off one so that you feel successful and, once paid off, you can move that to the next debt with the second-highest interest rate. Tackling debts individually will pay off your debt faster and allow you to feel more successful. Keep in mind you must continue to make the minimum monthly payments on your other lines to keep them from going to collection agencies. Once you stick to this plan, you will see that getting out of debt happens quicker than you think, and you’ll find yourself paying off your last debt with pride and resilience.
- If you have found that your expenses far outweigh your income, you can still get out of debt. After looking at what you can cut out from your budget and exploring ways to make extra income, a credit counseling agency can be of great help. You must find the right credit counseling for you. Make sure to do your research to make sure they are a reputable company. Check with your local consumer protection agency and state Attorney General’s office to see if there have been any complaints filed against them. Protect yourself before you make a move. Once you find a reputable source, agencies can help you with your financial situation. A debt consolidation loan may be a great option for you. You can pay off your debt bit by bit until you are finally debt-free. In other scenarios, your only options may be to ask your credit card companies for debt settlement or even file for bankruptcy. Keep in mind that your credit score will take a big hit if this is the case, but it may be your reality to get out of debt finally.
After Learning the Best Ways to Pay Off Debt, Make Sure You Stay Out of Debt for Good
Once you find yourself debt-free, you can continue to improve your credit score and maintain a healthy financial status. Make sure that you regularly check your spending habits. Create a realistic budget. Check your credit score each month. Cancel your lines of credit with a high-interest rate; however, keep a few lines of credit open, as this can help your credit. If you are disciplined enough, put small items such as gas or groceries on credit cards with low interest rates and pay them off completely each month. This will show creditors that have a responsible and active credit history. And, lastly, take a deep breath and be proud of yourself for tackling your goal. Paying off debt isn’t as hard as we make it out to be, and it can be your reality.
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