5 things you can do NOW to start getting out of debt
While I plan to write other posts, some going into more detail about ways to reduce and/or eliminate debt, I figured I’d write a short post on things you can do NOW to start making some progress.
1. Stop using your credit cards.
If you have any cards that are still active and have limits, stop using them. You need to stop increasing your debt level in order to reduce it.
2. Make a budget.
You need to determine exactly how much money you have coming in each month, and the amount going out. Start with only the things that are essential and fixed with expenses, such as mortgage/rent, utlities (general idea, if it varies widely, start keeping a spreadsheet so you can determine an average and plan for spikes), car, insurance, etc. Then set an amount for groceries and other variables that are NEEDS. If you don’t know how much you’re spending, look at old bank statements to get an idea of what you spend when you go. You may even need to get on board with using coupons. My primary blog, Practical Frugality, has some great information that you might find useful. I also have a category where I am writing posts on legitimate ways to earn money on the internet. If you are maxed out with no extra spending money, these should help. If you are hundreds of dollars from making ends meet each month, you either need to cut your expenses to the bare bones required minimum payments, or consider increasing your income, perhaps with a part-time job while also cutting back to bare bones, until you are at a break even (or preferable get ahead) amount each month.
3. Set aside some money for emergency savings.
Even if it’s only $10 a week, it’s a start. I suggest working towards a goal of saving 10% of your income for emergency savings, but if you haven’t been saving, and you are in debt, this may take some time to work up to. The point is to get into the habit of saving something each pay period. If you literally have nothing left to save, refer to my Earning Money category for some suggestions of ways to legitimately earn money online. Since this is a fairly new blog, there aren’t a ton of posts presently, but they will be increasing. These are NOT a way to get rich quick, but they are ways you can earn small amounts of money that you can put towards savings. Having cash savings will help you avoid using credit for emergency situations.
4. Get a copy of your credit report.
In order to know where to start, you have to know where you are. Getting a copy of your credit report will show you exactly what your situation is. You can get figures on who you owe money to, the total amount of your debt, and your minimum monthly payment. I suggest setting up a spreadsheet with this information. Include the annual interest rate. Then, map out a plan using the snowball method to pay it off. Some prefer to pay off the highest interest rate first, others to pay off the smallest balance. You have to determine what will work best for you to keep you encouraged and motivated. Obviously, make sure you are paying at least the minimum amount on each card on time each month. Another suggestion is to set up a column with a % of available credit. Depending on where you are, set goals to reduce this amount. If you are maxed on all cards, I suggest aiming for 80% on all cards, followed by 50%, then 30%, then 0. Getting your debt ratio under control will help improve your credit score.
***Update: It should go without saying to make sure you are current on ALL your bills before you start paying down others. Getting and staying current should be the top priority, as that will be the biggest improvement in your credit score.
5. Call your creditors.
If you are current, call and try to negotiate lower payments. This will help you pay off your debt faster.
If you are current, but at a high % of available credit, call and ask for a limit increase. DO NOT use this amount, instead, allow it to instantly lower your % and increase your credit score.
If you are behind, call and try to work out an arrangement to get current. Sometimes, they are willing to freeze and interest rate, reduce the minimum monthly payment, allow you to become current after 1-3 on time payments, or even write off part of your debt. Explain to them WHY you can’t make your payments, and what you’d like them to do for you, and negotiate. They may not always agree, but it is worth a shot. Make sure you get any agreement you make with them IN WRITING in case you have any issues you need to dispute down the road.
Finally, also be aware of your rights as a consumer. A site that I use and reference often is the FDIC Consumer Federal Rights page. Be sure to document and keep good records. Should you ever have an issue, there is a complaint filing process you can go through to get the situation resolved. Do not feel embarrassed or ashamed about your situation. You probably wouldn’t be reading this if you weren’t serious about resolving your problems. Be proud of yourself for taking this step and getting your financial life back on track!
If you need a good resource for checking your credit, Credit Karma is FREE and doesn’t require a credit card. It updates your score weekly, so it’s an excellent way to keep an eye on things. You can recommend anyone who needs guidance to check out my post Take control of your credit report using Credit Karma. It’s pretty self-explanatory, but I broke it down into steps, so hopefully it’s less intimidating 🙂