Eliminate Debt

If you dread opening the mail and worry about how you’ll afford your bills each month, you aren’t alone. Americans owe billions, if not trillions, in revolving debts. This doesn’t include mortgage debt, car loans, student loans, etc.

The good news is that once you’re ready to eliminate your debt, it can be done – but you have to be serious about changing your ways and making the sacrifices necessary to get yourself out of the hole. Here are some suggestions to help get you on the road to healthy finances.

First, figure out where you stand. You can’t realistically expect to get out of debt if you don’t know exactly how much debt you have. Learning the details of how much you owe is relatively easy, free, and can be completed online, over the phone or via mail. Get a copy of your credit report from each of the big three reporting bureaus (Experian, Equifax and TransUnion). 

Once you have the numbers, review them carefully. Most people underestimate how much they owe, this may be difficult, but you have to know exactly what you’re facing in order to overcome it.

Next, outline a plan. Your plan of action will depend on how far behind you are on payments and how much money you currently owe. Those with less debt or who are just beginning to realize they need to tone down the spending may be able to work out repayment strategies for themselves.

If you have delinquent accounts or cannot make even minimum payments each month to your creditors, you may require the help of a professional credit counselor. Get a list of government-approved credit counseling agencies in your area. Also, research your options: many types of loans have programs for those in financial crisis (student loan deferment, mortgage help, etc.).

Don’t discount filing bankruptcy - in certain situations, it’s the best way for consumers to get out of debt and receive a fresh financial start.

From this point you need to devise a new spending schedule. This begins by formulating a budget. Basically, you’re going to have to spend less money and/or earn more money to eliminate your debt. This may seem impossible, because you may feel as if you’re already spending as little as you can to get by.

You don’t have to make big changes. You can save a lot of money by adjusting the way you spend small amounts. These so called “small” expenses add up quickly. Things like brewing coffee at home and packing a lunch instead of hitting Starbucks every morning and dining out; eliminating expensive cable channels; turning off the lights when you leave a room; adjusting insurance coverage; walking, biking, carpooling, or taking public transportation instead of driving; buying generic instead of name brands. 

When you review your monthly spending, you’ll likely find several ways to carve a few dollars from your costs. After a while, those dollars will add up to serious savings.

Once you’ve limited your spending, it’s time to funnel money toward eliminating your financial deficits . One effective method for getting out of debt involves paying off your highest-interest debts first while making only minimum payments on all other debts. 

Make rent/mortgage your first priority. After making sure you can stay in your home, pay down your costliest loans one at a time. Prioritize accounts that have been sent to collections. If unpaid, these can be particularly damaging to a credit score. Contact your creditors and negotiate with them. Let them know what you’re doing and ask for a break on interest rates, extended payment periods, etc. Most creditors are willing to work out a deal, since they’d rather get paid something than nothing at all.

If you’ve cut back in every way you can and still can’t manage to make payments on your debts, consider filing for bankruptcy. A bankruptcy lawyer can help you decide if this is the right choice for you.

Part of your financial recovery is establishing a healthy relationship with credit, which will be reflected in a strong credit report and improved credit score. Especially if you choose to file bankruptcy, you must not let your credit report go dormant.

One of the most effective ways to rebuild your credit is to borrow money and repay it on time. This can be done through credit cards, a mortgage, a car loan, student loans, etc. Opening a savings account, too, allows potential creditors to see that you’ve developed financial responsibility and will be able to cover any debts you acquire.

Tags: bankruptcy, budgeting, credit counseling, credit report, debt elimination, financial health, reduced spending