10 Tips for Getting Out of Debt
These tips for getting out of debt are from a financial expert from Bills.com. If you’re drowning in credit card bills, medical bills, or mortgage payments – this info will help you manage your debt better.
Before the tips, a quip:
“Credit buying is much like being drunk,” says Joyce Brothers. “The buzz happens immediately and gives you a lift…the hangover comes the day after.”
The hangover is never good – whether it’s from spending or overindulging in anything. For more tips on getting out of debt, click on Debt Cures “They” Don’t Want You to Know About by Kevin Trudeau. And, read on for Ethan Ewing’s tips for dealing with credit card and other types of debt…
10 Tips for Getting Out of Debt
1. Understand assets and debts. Tally your income and expenses. Detail ongoing, fixed monthly expenses such as rent or mortgage payments, and then add variable expenses that are “must-buys.” These include food, gas and medicine. Next, set up categories for savings (prioritize building an emergency fund), unexpected expenses and – if enough remains – entertainment.
Subtract total expenses from monthly net income (the amount left after taxes and other paycheck deductions such as health insurance and 401(k) contributions) to find cash flow. If the bottom-line cash flow is negative or does not help achieve your short- and long-term financial goals, immediately commit to paying off your debt.
2. Pay off your bills. Credit cards charge an average interest rate of 14 percent. A missed payment can send the rate skyrocketing to 30 percent or more; the result can be interest that mounts up and becomes unmanageable debt. Read 6 Tips for Paying Off Your Bad Debt for more info!
3. Create a spending plan. Figure out how much money you have to live on each month, and how much you earn. Sticking to your budget will help you get out of debt.
4. Discipline yourself to live within the budget. If you need to – or if you cannot pay off your credit card bills in full each month – use cash or a debit card for daily purchases.
5. Pay the most on the debt that carries the highest interest rate if you have credit card or other unsecured debt, while making minimum payments on other debt. When the debt with the highest interest rate is paid in full, implement the same strategy for the next-highest-rate debt. Always pay secured debts (mortgage, car) first.
6. Negotiate your debt. If you can’t make minimum payments on bills, try calling creditors and asking for temporary hardship status. Some creditors may work out payment plans. While creditors are under no obligation to negotiate, it is often in their interest to do so, since it makes getting out of debt more likely.
7. Get debt settlement help. A debt settlement firm called Freedom Debt Relief negotiates on consumers’ behalf to lower balances due. Consumers pay the debt settlement firm a portion of the savings, which can be up to half the full amount owed. Debt settlement typically provides better repayment terms than a Chapter 13 bankruptcy filing – and with no permanent bankruptcy judgment. Debt settlement will have a negative impact on credit ratings, however, and is best suited for those with large debt burdens.
8. Consult a debt consolidation service. If you’re getting out of debt, beware of high fees of some debt consolidation services – and check the service’s reputation. Those working with a debt consolidator will likely sacrifice two things: the freedom to open and use additional credit lines and, in many cases, their credit profile.
9. Borrow from family or friends. Be cautious with this option for managing and getting out of debt, and make sure to get any agreements in writing. Read Tips for Lending Money to Friends or Family Members for a clear plan.
10. File for financial bankruptcy. Truly a last resort, bankruptcy destroys a credit rating for many years. Bankruptcy is more difficult to obtain than it used to be, and more expensive. Bankruptcy reform sharply curtailed filings for Chapter 7 bankruptcy, the type of bankruptcy that eliminates most consumer debt. Chapter 13 bankruptcy requires consumers to pay back their debt on repayment plans (as determined by the state). Repayment terms for bankruptcy generally are less favorable than those found with debt settlement.
Bills.com is a free one-stop portal where consumers can educate themselves about complex personal finance issues, including credit cards, debt relief assistance, insurance, mortgages, and other loans.
Comment by Laurie PK on 31 March 2009:
It’s also important to look at why you’re in debt!
Research shows that people spend money because they don’t feel powerful…so finding other ways to feel powerful will help you stay out of debt. It’s not a great tips to help you get out of debt now, but it could help in the future…
Comment by Bruce on 10 April 2009:
Budgeting is the key in my opinion. Keep a bit of your monthly supply for enjoying some things in life so you don’t feel so hard done by. Pay for this in cash so you have better control and no surprises on your credit card statement. Then use some of Laurie’s tips, especially the debt consolidation, and focus all your cash after paying your bills on getting out of debt as fast as you can.
Comment by LauriePK on 10 April 2009:
Making a budget is easy…but sticking to it is the problem!
Actually, my problem is NOT spending enough money. Seriously, I’m too frugal — I need to enjoy myself more, spend a little more. Need to make a budget for entertainment, so I get out more.
What’s a good amount of money to spend on entertainment each month? $100?
Comment by Rick on 20 June 2009:
Another terrible temptation towards debt is the “need” to have something. When I young I was sold a vacuum by a door to door salesperson. He actually convinced me I needed it and that it was a long term investment. This even though I knew I wanted to save for a house. I still have the vacuum but I could have bought several for the price I ended up buying, including interest since I couldn’t afford it out right. Another time I bought a furniture set for my apartment because I thought I would buy a good one that will last for a long time. I had to finance it but, really, I didn’t need it and it was more than I could afford. And because I wasn’t settled down I ended up giving it away. Understanding needs verses wants is so important.
Comment by Irene on 20 June 2009:
Laurie, I believe it is important to spend a small amount regularly so you don’t have a building up desire to spend. It might be best if it was a small % of your after bills-are-paid money. This works for me!