In Over Your Head? Six Steps for Getting Out of Debt

When you are in debt, it can feel overwhelming. You may be consumed with high interest rates and no funds to pay down the balance. Maybe you plan on buying a house or want to start a savings account, but feel that is not a possibility. It takes some planning and work, but once you are determined to reduce your debt there are several steps you can take that can help in the process.

1. Determine Your Debt

The first step is to get a clear picture of how much debt you owe. It’s important to calculate how much money you need to pay off. This amount includes credit card debt, home loans, student loams, car loans or department store charge card debt. Make a list of how much you owe to each creditor, your minimum monthly payments and your interest rate. You’ll need all this information when determining the best way to tackle your bills.

2. Set Up a Budget

A budget helps you to manage your money better. It lists your monthly income and expenses such as food, utilities, gas and clothes. With a budget, you know how much money you need each month to pay your bills. A budget also tells you how much money you have left over to pay off your debts. After you record your budget, go through and look for places you can cut. If you have been spending a high percentage of your paychecks on entertainment or dining out, set a lower limit in these areas and be sure that you don’t go over it.

3. Stop Buying on Credit or Getting Loans

The best way to reduce your debt is to not take on any more. For every purchase, pay with cash, a check or debit card if you can. Try to avoid using your credit cards. Also, don’t make any major purchases that require a loan. Record all purchases in your checkbook or on a smartphone budgeting app. This way, you can keep track of all your payments and make sure they add up properly. For entertainment and non-necessities, it’s best to set aside a small budget in cash. Once this cash is gone, stop spending.

4. Use a Credit Repair Company

Credit repair companies offer a variety of tools to help people get out of debt. The debt counselors offer advice on the best ways for you to eliminate your debt such as balance transfer. If you are eliminating debt in hopes of purchasing a home, you can also look online to learn more about different ways to increase your credit score.

5. Transfer Your Balance

If you have a lot of credit card debt, one option is to transfer all the balance to a credit card with much lower interest rate. However, transferring balances incurs many fees. You want to look for a low interest credit card that also has low fees. A credit repair counselor can help you with this. By calculating how much you will pay in fees before transferring your balances, you can find a good deal. In some cases, the hefty fees make the balance transfer a bad financial move because it ends up costing you even more money in the long term. Do your research to find out if it is worth it before making any moves.

6. Pay More than the Monthly Minimum Required

Each month, pay more than the minimum required. This applies not only to credit cards, but also to mortgages and car loans as well. By paying more each month, you pay off the debt faster, and end up paying less in interest fees. One of the best ways to pay down debt is to start with the card or loan with the highest interest rate. Pay the minimum monthly payment to all your other creditors and then use whatever is left to pay a higher amount on your card with the highest interest rate. Once you have paid off that card, work your way to the card with the lowest rate, until all your cards are paid off.

Debt management is a complicated process. By educating yourself on the best ways to reduce debt, you can improve your credit slowly, but surely. If you fee like you are in over your head, start small. Just paying cash and not using credit can make a big difference over time.

Source: http://www.lexingtonlaw.com/credit-education/credit-repair-company/

Category: Debt