No one likes being in debt. To most Americans, carrying around a big debt load is a source of stress, anxiety, even shame. This uprush of negative feelings can have the effect of paralyzing you and making it hard for you to make decisions regarding your debt. In America, people may judge you by how successful you are, and being a debtor can make people feel ashamed. That said, one of the first things anyone in debt needs to do is to get real about their debt. When you’re in debt, it doesn’t mean that you’re bad or lazy, it just means that you haven’t managed your money effectively. Just remember, there’s no moral aspect of being in debt; it simply means that you owe some money that you might be having a hard time paying back. If your priority is paying off your debts as soon as you can, then you need to look at being in debt coldly and dispassionately, and work logically and efficiently to eliminate the debt that is causing you so much stress.
First, figure out how much you owe. If you have accumulated a great deal of credit card debt, assemble all of your credit card statements and calculate the total amount you owe on each card, record the interest rates you’re paying on each one. Make a list of this information using Excel or another spreadsheet program, or simply record it on a legal pad.
Then, once you’ve written down all of your credit card debt, record your other monthly expenses, including your mortgage, student loans, utility bills, cable bills, car loans, groceries, gym memberships and anything else you spend money on every month. Calculate how much you owe in each area, and what the specific interest rates are. Recording all of your outstanding debt, and then your ongoing monthly expenses, will help you get a handle on how much money you spend every month.
Step Two: Slash Your Expenses
Once you understand how much money you’re spending every month, take a long look at those monthly expenses and figure out which ones you can reduce or eliminate entirely. For example, cable TV service is expensive and may be costing you $100 a month or more. Even when you bundle it with Internet and the cost of a landline, it’s still no bargain. Eliminate it. If you have Internet, you can get plenty of streaming content to watch. Add an antenna to your house and you can watch TV for free. There are other things you can do to cut daily expenses such as eliminating dining out, going to the movies (you can rent from Redbox or watch streaming video instead), disconnect your home phone and just use your cell phone. Cancel optional spending like newspaper subscriptions, manicures and pedicures. Stop buying books and get your books, videos and computer games from the local library. Read magazines and newspapers there, too. Buying coffee at Starbucks, etc. is expensive. Make it at home and bring it with you. Same with bottled water; get a metal or plastic water bottle and fill it from the tap. There are other ways to cut your daily expenses of course. Check out this page (33 Ways to Reduce Personal Debt) for more excellent suggestions.
One of the biggest hurdles to getting out of debt is the exorbitant interest charged by some credit cards. If you have a card with a high interest rate, then you should immediately apply for another card that offers a 0% interest rate and no transfer fees for as long a period as possible. Some cards will give you 15 months at 0%, while others will offer 18. Shop around and get the best deal you can. Then, after you transfer your outstanding balance from your high-interest card and pay as much of your debt as you can every month. It may be painful in the short run, pinching pennies every week, but the payoff will be when you can retire that debt. When you do, pat yourself on the back. You’ve accomplished something important.
The option discussed above may not be available to everyone. If your credit is less than spotless, you may not have any of those 0% offers in your mailbox or coming over the Internet. In which case, get in touch with your credit card issuers and try to get your interest rate lowered, or get a lower monthly payment, until you have a better handle on your debt. It never hurts to ask, and you can be surprised what you can get if you’re polite, persistent and business-like in dealing with credit card companies.
Most of the offers from companies that claim they can help you eliminate your debt are bogus. These firms claim they can intervene for you and arrange more favorable terms for your debt, get some of your debt forgiven, and get you other advantages. The truth is there is no magical solution that will eliminate your debt. If you try to work with one of the companies that offer amazing results, you’ll probably wind up worse off than when you started. Generally, there are only two ways to deal with outstanding debt, negotiate with your creditor to see if they’ll take a mutually-agreed upon amount (this is known as debt settlement), or you can declare bankruptcy and the debt will go away. Bankruptcy is not a solution for everyone, and it will make it difficult if not impossible to get credit while the bankruptcy is on your credit report, but it is one solution to eliminating some of your debt.
A reputable credit-counseling firm can also offer an additional pathway out of debt. Generally when working with a credit counseling company you can arrange to keep you monthly payments about the same, but can manage to get your interest rates reduced. Another viable possibility is getting a debt consolidation loan, where you can reduce both the size of your monthly payments, and the amount of interest you’re paying.
Debt is what it is: money that you owe on credit cards and other time payments. Don’t let it dominate your thinking and do something irrational, like cashing out your 401K to pay off your debts. So don’t panic. Take a deep breath and approach paying off your debts in the most logical way possible.
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