4. Check your credit report to find all your debts
Every year you can run your free credit report at Annualcreditreport.com. This is mandated by the federal government and the annual credit report is approved by the Federal Trade Commission. Collection agencies regularly report your debts and payments to major credit bureaus.
Don’t fall for scams that charge you for your credit report.
When you receive your credit report, make sure there are no outstanding credit card accounts that you forgot or were unaware of. You need to properly identify and locate all your debts in order to start attacking them.
More than likely your credit rating has taken a hit because of your money problems. Too many people worry about their credit rating rather than the debt they have accumulated. Ignore your score – the last thing you need right now is another line of credit.
5. Build up an emergency fund before you pay off your debts
If you have a budget and immediately start tackling your debt, you are setting yourself up for failure. Unexpected life issues arise at the most inopportune times – that’s why we need to prepare for emergencies in advance.
In order to avoid future debts, we need to make sure we have cash on hand to pay for any unforeseen events. If you’re paying off debt and your car breaks down, you don’t want to put more money back on a credit card. The idea is to to avoid no more debt. To do this, we need a separate account with money in it to protect us from life.
A good emergency savings is $ 1,500 to $ 2,000 in cash. The reason you need so much money is to be reasonably prepared for emergencies. If your vehicle breaks down, it can easily cost over $ 1,000 to fix it. By giving yourself enough cushion to deal with most potentially costly issues, you can set yourself up for success.
If you live from paycheck to paycheck, it can seem like an amount of money that is impossible to accumulate. However, there are many ways to build this fund quickly.
You could start a lateral restlessness or get a part-time job to start funding that savings account.
Along with additional income, a great way to quickly fund that savings is to start sell things on the internet or organize a garage sale.
If you need more help setting up your emergency fund, I’ve written a detailed article on emergency savings here.
6. Use the Debt Avalanche or Snowball Method to Pay Off Your Debt
Now that you have your budget and emergency fund in place, you can finally start paying off your debt.
There are differences of opinion as to the method best way to pay off debt, but somehow will work. Both methods focus on paying off one debt at a time. If you use a shotgun approach and try to pay off all of your debts at once, you may never be debt free.
To pay off your debts as quickly as possible, pay the minimum on your debts except the one you want to repay. Put all of your extra money in one debt at a time to pay it off as quickly as possible.
During this process, don’t put any more money on your credit cards!
Stick with your debt repayment plan to free up additional money that you can use to meet your financial goals.
For more information on the debt avalanche and the debt snowball method, check out my article linked here to decide what is best for you.
7. Negotiate with credit card companies to settle your debt
If you owe a bunch of people a lot of money, chances are they will know it. Many people default on their loans, and the credit card companies are desperate to get the most out of you.
If your unpaid debt was sent to a collection agency, you may be able to settle with the collection agency pennies on the dollar.
To do this, you usually need a lump sum of money before a business is ready to set up. For example, if you owe $ 10,000 on a credit card, you might be able to pay it off for $ 5,000 or less. A friend of mine wrote a detailed article on how to negotiate with debt collectors, but here are its main points:
- You can’t trust debt collectors
- Expect them to say whatever they can – even lie – to get money from you.
- Make them an offer to settle the score
- Some creditors will settle the account up to 50% in a lump sum, while others will only settle 75-60%. Be respectful and see what you can get them to. Keep in mind that their job is to get as much money out of you as possible.
- Never pay the debt over the phone
- This is a common tactic used to get your payment information which they can then use to withdraw even more money.
- Any settlement amount must be in writing
- Don’t take their word for it, your debt is settled. Ask them to send you an invoice indicating the amount to be paid for the account to be “settled” – before sending them a check.
8. Increase your income to get out of debt
During this process, you may have made all possible cuts. If you find yourself sticking to your minimum budget and still struggling to progress, you may need to explore another career path.
You just might not be making enough money.
Start looking for other employment opportunities that you can transition to to increase your income.
In reality, you might not have a problem with spending, but you might have an income problem.
Start working on a Fantastic resume and don’t be afraid to put yourself forward. You obviously have a good dose of drive and motivation, which means you have the opportunity to increase your income. Make sure you work hard in your current job until you are able to find other employment and income.
For a quicker fix, you may need to land a second job or side business.
9. Save money on daily purchases
If you’re looking for some extra ways to make money, I’ve put together a comprehensive guide on how to save money on daily expenses. The Ultimate Guide to Saving Money was written with you in mind to save money in places you never thought possible.
Options to avoid to get out of debt
On your debt-free journey, you’ll meet people who will offer you shortcuts and other quick ways to get out of debt. Please heed my warning when I tell you that there are no “quick fixes” to “legally” debt reduction.
Balance transfers offer a quick fix by kicking the box on the go. If you plan to transfer credit card debt to a new 0% interest rate card, be aware of the transfer fees. Most cards will charge you to transfer your money. Plus, at the end of the 0% term, your balance will quickly turn into high interest debt if you weren’t able to pay off the credit card debt. before the promotion expires.
- Debt Relief Plans Or Debt Consolidation Loans
I wrote a detailed article on debt consolidation on here, but in summary, here are the main points:
- Consolidation loans promise lower interest rates, but this is not always the case
- A balance transfer fee will be added to your total debt
- Debt consolidation loans will increase the time it takes to get out of debt
- Your credit score may be affected by applying for new loans
- A lower interest rate doesn’t mean you’ll save money in the long run
Debt consolidation can be beneficial in certain circumstances, but overall, it usually costs you more money than it is worth.
We’ve all heard of the Federal student loan forgiveness scheme. However, did you know that in 2018 a total of 19,321 students asked for forgiveness, but only 55 of them met the strict criteria?
There are so many hoops to go through and so many fine print that the majority of people who have been promised forgiveness were never eligible in the first place.
- A home equity loan to solve your debt problem
Sure, you may feel like your debt is gone and that only increased your mortgage by $ 100 per month, but do you have any idea how much interest you’re going to pay over the life of that? new loan?
Plus, have you really corrected the spending habits that got you into debt in the first place or are you going to go back to your old ways and get into debt again?
A new loan is not the answer to an old loan.
Bankruptcy should be an absolute last resort, and even then, it doesn’t solve all of your problems. For those who qualify for bankruptcy, some of your debts remain with you, such as your mortgage, student loan, taxes owed, alimony, and child support.
In addition, a judge is involved in your case and can make decisions about what you can spend your money on. It is incredibly restrictive and will destroy your credit score for 7-10 years, depending on which chapter you have applied for.
Final thoughts on how to get out of debt
I have no doubt that you are tired of being broke and drowning in debt. I want you to know that you are not alone and that there is hope. I have worked with many people in “hopeless” situations who have managed to get out of debt.
It’s not about managing your debt; it’s about learning how to get rid of your debts.
To eliminate debt, you need to think about getting rid of your debt. By sticking to your chosen debt repayment plan, you can get rid of your credit card debt and finally start breathing again.
As I’ve already said, you are the key to get out of debt. I’ve provided a path for you to follow in order to take control of your finances, it’s up to you to begin the journey. If you have any questions or need further advice, please do not hesitate to contact me at [email protected] I am also on the social networks mentioned on this site.
I look forward to hearing about your success on this journey. You can do it, you work too hard to be this broke!
This article originally appeared on ArrestYourDebt.com and was syndicated by MediaFeed.org.