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Are you scared to open your bills? Do you choose which one to pay and which one to delay? Only make the minimum required payment? Frequently have late payments?
If so, you most likely have too much debt.
Too much debt can leave you feeling like you are drowning. You might feel that no matter how hard you try, how hard you kick your legs, you are barely keeping your head above water.
Challenge that feeling today!
Learn some of the ways to get out of debt and take action to stand comfortably on land.
Debt can take a serious emotional toll. It can even cause some people to consider suicide. If you are in a crisis, contact the National Suicide Prevention Lifeline 1-800-273-8255. They are free, available 24/7, and can give you support.
Many people are impacted by debt. You are not defined by your debt, and you can overcome it.
1). Organize Your Finances
You can’t do anything until you fully understand the problem and the amount of debt.
Take out a piece of paper and list everything that you owe. You need to include the name of the creditor, what the balance is, the minimum payment, and the interest rate.
Types of debt include credit cards, car loans, student loans, mortgages, and any personal loans. Record anything you owe on a sheet of paper or spreadsheet.
2). Determine the Cause
It’s hard to move forward without addressing the cause of your current situation. Where did the problem come from?
Did you overspend? Was it caused by medical bills? Did you lose your job or get divorced?
It’s important to address the cause without judgment. No reason is more valid than others. Feeling shame won't help you.
If it’s overspending, know that lots of others have been there before you. I have personally made mistakes spending too much and wracking up credit card debt.
What you need to do is acknowledge the cause to reduce the likelihood of it happening again.
3). Create a Budget
A budget is one of the most basic personal finance tools and can help you to find extra money to reduce your debt.
You can easily create a budget or spending plan:
- Start by writing down your take-home pay
- List all of your expenses
- Separate your expenses into two categories, vital for survival and optional
- Start thinking of ways that you might increase your income, save money, and reduce or cut expenses
Through the budgeting process, you will discover where you are spending money and create a plan to free up additional funds that can be used to pay down your debt.
4). Talk to Your Creditors
Contact your credit card companies or other creditors, and let them know that you are having trouble, but are serious about paying them back.
Ask them what they might be able to do to help!
Creditors can be like school principals, often times only dealing with the bad apples. If you show honesty and a willingness to improve, they often work toward helping you out. You never know unless you try.
They may reduce your minimum payment or interest rate, give you a longer grace period, or even lower how much you need to pay back!
Creditors love to work with people who are serious about paying them back.
5). Check for Mistakes
You never know what mistake could be corrected to work in your favor.
In the case of medical bills, do everything you can to appeal insurance companies and carriers about the amount.
Review your credit card statements to confirm that all of the transactions were yours.
Double check everything.
You never know what you might find.
Lower the Cost of the Debt
Reducing the cost of your debt is a great way to make progress on eliminating it. Here are a few examples and ways you might lighten the load.
1). Refinance High-Cost Loans
Refinancing your highest interest rate loan with a lower interest rate can be a good way to significantly reduce your long-term costs.
For a mortgage, the fees in refinancing are usually less than the long-term savings of a lower rate over a 15-30 year term.
In the case of credit cards, you might be able to transfer the balance from one card to another in order to take advantage of lower introductory rates.
2). Consolidate the Loans
By reducing the number of loans you lower the impact of annual fees or late payment fees.
Ideally, this should be zero, but when you have many debts it's easier to lose track of one.
You can also negotiate better rates or terms, especially if the debt is secured.
Secured debts, like auto and home loans, have lower rates because if you don't pay there is an asset the lender can sell to recoup their costs.
3). Sell Assets with Loans Attached
If you have an auto loan or mortgage, you can potentially sell that asset to eliminate the loan and even have some extra cash left over.
Can you sell your vehicle with a large auto-loan and replace it with something more economical? Do you have equity in your house that you can use to pay off high-interest debt?
Before you sell anything, take the time to evaluate the alternative expenses. It usually isn't a good idea to sell your house if your rent will be higher than your mortgage was. Only use this method if it absolutely makes sense for your personal situation.
Get Outside Help
There are a number of resources that are available to help people that are drowning in debt. If you find yourself in financial trouble, it might be time to look for some assistance.
You need to be careful, though, because not everyone in debt counseling is acting in your best interest. Here are areas that a credit counseling agency might be able to help you with.
Debt Management Plan
In a debt management plan, you make monthly payments directly to the credit counseling agency. The agency then uses that money to pay your debts to your debtors.
For credit cards, the plan can greatly reduce the interest rates and save you thousands of dollars in saved interest.
Debt management plans are a form of debt consolidation loan and don't work for everyone's situation. For example, they don't include medical or student loan debt.
For a fee, debt negotiating firms will work for you to negotiate a lower amount owed. They may be able to significantly reduce the amount you owe, but there can be negative consequences too.
Debt negotiation can impact your credit rating for a long time and the IRS may view forgiven debt as taxable income. Be sure to ask about the details before considering employing a debt negotiation firm.
Firms that “Fix” or “Repair” Your Credit
Credit repair firms focus on improving your credit score and don't actually help you to reduce your obligations.
You can do a lot of this yourself and don't need to pay large monthly fees. The Credit College can be a great resource in teaching you the nuts-and-bolts information to fix your credit yourself.
The best way to fix your credit score is to make regular payments, pay your debts, and let time go by. Provided that you don't add new ones, negative items on your credit report will disappear over time.
If you are truly drowning in debt and it feels that there is no way out, look closely into bankruptcy.
Bankruptcy is not the easy way out but it is a last resort option. Bankruptcy is a court-monitored process where you have debts eliminated (chapter 7) or a repayment process is put in place (chapter 13).
Not everyone qualifies for bankruptcy and there are a number of debts that cannot be eliminated, like child support and taxes. But if you feel there is nothing else you can do, bankruptcy is an option to research.
Becoming debt free is a goal worth aiming for and a goal that you can achieve.
Map out a plan and start taking action today. Taking that first step is the key to standing on solid ground.
I hope that some of the ideas in this article have helped you.
Feel free to comment below or contact me on how you plan to get out of debt.
Share your commitment with others. You may be surprised at the support you find.