Getting Out Of Debt
People often look for grant opportunities to combat the rising costs of life. For most Americans (and grant-seekers), living with credit has become the norm and a necessity to stay ahead of the bills. We have credit cards, mortgages, school loans, car payments, and often times emergency expenses like medical and mechanic bills. It doesn't take long to find yourself owing far more money that you can pay.
Financial consultants have mapped out ways to manage debt-ways to stop it from increasing, ways to pay it off, and ways to ultimately build your credit score. If you know it's time for life changing action so that in 5 or even 7 years you are living with more financial security, there are steps you can take today.
Where To Start
One of the first steps to take is to identify how you fell into debt in the first place.
Make A List
- Use the tool that's right for you, either electronic or paper; but there's something very real about holding up the paper and ink chart you've written out by hand.
Create a chart where you list the creditor's name, total balance currently owed, interest rate, and minimum monthly payment.
Evaluate how and why
- Debt is a result of spending money you don't have, but go line by line and think about each creditor.
Is your debt the accumulation of consistently spending more on daily purchases than you're making?
Did you get hit with medical bills?
Did it all start with that first student loan?
Was it "that car" that was just right for you?
If your issues are a result of lifestyle choices, you'll have to make some tough but quite necessary decisions to alleviate the escalation.
Total your minimum monthly payments
- Get a bottom line dollar amount of how much money it takes each month to stay current with all your payments.
Use a debt calculator
- Enter all that you listed on your chart into the calculator. The calculator will figure how long it will take you to pay off all amounts due by paying the minimum payment each month.
Look at that date. Let it soak in. Are you satisfied with living this way until then? If not, take action today.
Stop accumulating debt
In the simplest of terms, you must spend less than you take in every month. Otherwise, you will fall deeper and deeper into debt. So, how do you spend less?
Create a realistic, tight budget
- Right now while you're focused and motivated, create your budget. You must include the minimum payment for all debts plus all essential expenses such as insurance, utilities, and basic food. Include a simple reward (which will feel like a big reward after a few weeks on your budget). Account for every dollar.
Cut spending on nonessentials for 30 days
- Define "nonessentials" in very strict terms. You don't have to eat out this month -- at all. Your kids can probably make it this month without any new clothes or toys. Consolidate trips to save on fuel costs. Take public transportation. Cut the cable. No online shopping for 30 days. Adjust the thermostat. It's going to hurt, but you can do this.
Evaluate and reward. At the end of your 30 days, re-evaluate
- Enjoy the reward you budgeted. Let the family know you appreciate their sacrifice. Reassess your budget and get ready for your next 30 days.
After adding up your debt and establishing your budget, you may have concluded that you cannot reach your financial goals without some smart moves.
In nearly all situations, increasing income, at least temporarily, is good on several levels. You're busy; you're constantly reminded of the cost of debt; you see faster progress in paying down debt.
Increased income can come in the form of a second job or multiple streams of income such as freelancing, babysitting, or completing online surveys.
More Tips For Success
Use your tax return
- Put your tax return toward debt repayment. If at all possible, pay off something substantial that you'll remember.
- If your home mortgage is not at the lowest possible rate and if you're planning to stay in your home for several years, consider refinancing.
Sell your stuff
- If you've ever bought anything on or at eBay, yard sales, local "picker" online sales, Craig's List, etc. then you can sell through those venues. You may even need to consider a big sale such as your home or car. If you can sell your car for $10,000 and buy one for $7,000, you have saved thousands of dollars in payments and interest.
Request a lower credit card rate
- With several months of on-time payments behind you, your credit card company may support your efforts to get out of debt. You can call and request a lower rate.
- See if you are eligible to transfer a credit card balance to a card with a lower rate. Switching from 25% interest to 18% interest or even better to 0% can get you out of debt faster.
Tackle the Debt
Choose one amount to pay off completely first. When it's done, the money that you were sending to that card, you now put toward the next item on your list. Do not allow that money to seep back into your monthly budget. Use it to continue paying down your overall picture.
Look at the kinds of account you have and choose one start with.
Secured vs. unsecured
- Secured loans are for items such as your car or house which can be repossessed for failure to pay. Unsecured loans have no collateral.
Revolving vs. non-revolving
- Revolving you can keep adding to such as your credit card. Non-revolving is fixed such as a medical bill or student loan which you do not add to.
Highest interest vs. lowest balance
- Are you more motivated to save on interest payments or to see a debt crossed off your list?
As you make monthly on-time payments and as you begin paying off some debts completely, your credit score will increase. You'll reduce stress in your life and in your relationships. You'll have options and financial freedom to write the story of your life.