Debt can be a very useful tool that allows us to have more financial options than our income and savings allow. It also has a dark side that can tempt us into overspending and living outside of our ability to pay the money back.
The first step on finding ways to get out of debt is to acknowledge that you have a debt problem and something must change. Once you are ready to commit to fixing your debt problems then here are some great debt reduction tips. It will not be easy but your finances are important and putting the effort in and making some short term sacrifices will give you long term financial security.
The First Steps to Getting Out Of Debt
Here are some great ways to get out of debt that you can start with immediately. They will help you to quickly find out your true financial position so that you can put together a longer term plan.
- Do not go into further debt except to refinance.
- Catalogue all of your debts and monthly payments.
- Create a budget so that you can see your true financial position.
- Commit to make paying off debts your highest priority.
You can take these four steps immediately, stop using your credit cards right now so that you are not accumulating more debt. It can be very difficult if you are used to just buying what you want when you want and can be quite daunting because you now have to rely on the money that you have from each paycheck.
It is important to understand your financial position and having a list of all your debts, company contact details, interest rates and monthly payments not only makes it crystal clear what you owe but will help you to create a plan to get control of your debt. As you can see when you have all of your debt data in front of you it is much easier to see your true position so making a budget allows the same clarity with you overall financial position. It takes a little work to get all of your bills, payments and income in an easy to understand format but once it is done then you are ready to take the next step and look at practical ways to get out of debt.
Planning To Get Out Of Debt
You are committed to debt reduction and have stopped racking up debt so now it time to implement a strategy to pay down your debts as quickly as possible. Here are some ways that you can do this that have worked for other people in your situation.
Pay more than the minimum.
One of the worst ways of paying credit cards and store cards off is paying the minimum. This amount should be called the maximum because it is designed to charge you the highest possible for the longest time possible. Even relatively small extra amounts will rapidly reduce the amounts of these debts.
Try to save for emergencies.
It is hard planning for an emergency but one thing every emergency situation always leads to is added expense. Even a modest emergency savings account balance can stop you having to go into debt.
This is an advanced level technique that is the best way to get out of debt. This is done by putting all of your spare financial resources into a single debt that either can be paid of quickly or has the highest rate of interest. When it is paid off then the next in line is attacked in the same way. This is so effective because as each debt is paid off you have more money available to pay the next debt because you do not have to pay the old debt’s monthly payment.
Contact creditors and negotiate a better deal.
When we have debt problems it can be difficult to discuss it with anyone but it is vital that you talk to your creditors. They can in most case vary the terms of your debt because of financial difficulties. This can be a short break on payments, a lower interest rate or by extending the terms. The old adage of not getting anything without asking definitely applies here.
Can you cut back on some expenses?
With a budget you can look at your expenses and make some cuts particularly on expensive things that you do not need.
Can you access retirement or life insurance funds?
You might be able to access funds from these sources but be aware you might increase tax liabilities. Look at borrowing against them as you can refinance your high interest debts using these funds and pay them off quicker.
Look at credit counseling or debt management organizations.
If you are just not able to get your financial position straight then seeing a debt counselor or enrolling in a debt management plan can be a positive way to get out of debt. It is important to make sure you understand what any debt management plan commits you to and any fees and charges you will have to pay.