Get Out of Debt in Four Easy Steps
by Steve Diamond
Do you have a manageable debt problem? Maybe a life event, like temporary job loss or sickness, may have put you a bit behind on your payments. Or maybe you just let your small debts add up to the point that you feel they may be getting out of control.
If this sounds familiar, then you need to take action now. Follow these four easy steps, and you’ll soon be back in control.
Step 1. Stop accumulating new debt!
This is the first and most important step. If you keep charging, you will dig yourself a deeper hole. If you can’t take this step, you may as well stop reading now. The rest of this article will not be helpful.
Step 2. Prioritize your payments.
Make a list of all your monthly obligations. Then arrange them in order of priority. Start with those that you can’t do without, like your mortgage payment and your utilities.
Next are the credit cards and store cards that charge the most interest. By paying off the cards with the most interest you can reduce the amount of interest calculated on your next bill. This means you will pay off your entire debt as quickly as possible.
If you can get a balance transfer offer to another card with a lower interest rate, and if there is no transfer fee, it may be worthwhile to transfer your credit card balance onto another card. If you can get an introductory 0% rate, great. This allows the full monthly payment to be deducted from your balance without incurring any interest. But most of these offers are for a limited time, like 6 or 9 months. After that, the rate may go up quite a bit. If you can’t pay off the whole balance before the rate changes, you may be better off not making the transfer.
Keep your list handy so you remember to make your debt payments with any available money you may have at the end of each week or month. Doing so prevents any arrears and a build-up of interest on credit cards and store cards. Resist the temptation to take the excess cash and splurge.
Step 3. Find ways to cut back on expenses.
You will be surprised at what you can save when you cut back. Make a list of all of your current expenses. This includes all your shopping, hobbies, magazines, newspapers, treats, everything. Then take a look at the list and remove all non-essentials. No cheating! A cup of Starbucks latte is not an essential expense. If you buy one each working day, you can save roughly $100.00 a month by stopping. (That’s $4.50 per latte times 22 working days in a month.) That’s quite a lot of money when you’re swimming in debt. Maybe it could make the difference between swimming and drowning.
Be tough-minded over this. After all, it’s to your own benefit. You may feel a little lack in the short term, but imagine your future prosperity and keep prosperity at the forefront of your thoughts. You will be surprised to see how much you can save from this technique and how little pain it will cause when you keep your ultimate goal in mind.
Step 4. Contact your creditors.
If you just can’t keep up with your payments, don’t be afraid to contact your creditors. They will try to help you. It costs them much more if you default than it does to work with you, so they have just as strong an incentive to work something out as you do. If you’re having trouble meeting your payments, tell them. Be realistic about what you can afford. You may be able to negotiate a new payment plan that you and your creditors can live with. It’s much better if you contact them first.
Before contacting your creditors, make a comprehensive list of your income and expenses. This lets you calculate a realistic amount that you can pay each month. After you have completed a list of expenses, make a list of all creditors, remembering to prioritize from most important to least important. Then prepare a formal letter to each creditor explaining your situation and proposing your payment plan.
When you and your creditor agree on a plan, be sure to stick to it and to keep in touch. This will earn you the trust of your creditors.
By following these four easy steps, you will once more be in control of your debts, and well on the way to being debt-free.
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