Debt is becoming more and more a fact of life in the US and other affluent countries where the status quo is buy, buy, and more buy. Many (too many) people feel overwhelmed or trapped by their debt, whether it be credit cards, student loans, mortgages, or a deadly combination of all. Debt is the simple result of a simple problem: spending more money than you have. Doing this on a regular basis will quickly lead to financial disaster, and leave you wondering how the hell you’re going to make the minimum payment on your credits cards, much less pay off that new car loan and still buy groceries.
If you’re facing a pile of bills and wondering just how you can get out of debt without sacrificing the next forty years of your life to the cubicle, we understand, and want to help you get rid of your debt and start learning how to manage your money wisely. A few things are important as you begin working to get rid of your debt: don’t feel overwhelmed, be willing to re-evaluate your priorities, and don’t be afraid of change. We hope this and the advice below will help you get rid of debt.
Best Ways To Get Rid of Debt
Create a budget to get rid of debt. The first and most important step in getting rid of debt is taking control of your finances and spending only what your income allows. Sit down (alone, or with a financial advisor) and make a complete list of your necessary monthly expenses and your total monthly income, as well as your outstanding debt. Be realistic about your spending and yourself. If you underestimate your spending (or overestimate your income) in an effort to feel more thrifty you’ll only end up hurting yourself financially. Don’t try to eliminate all your “extra” expenses, but find reasonable ways of cutting down and living within your means (see suggestions on the right sidebar). Once you’ve taken stock of your finances, create a plan for your money each month, allotting specific percentages or amounts to each category of expense (housing, food, entertainment, transportation, etc.) and (very important) paying off debt. Create a realistic budget and a long-term plan for getting rid of debt, then hold yourself to it; commitment is essential to getting rid of your debt.
Prioritize your bills to get rid of debt. Get all the information about all your debts, loans and credit cards. Find out what your interest rates are and if the interest is tax deductible. Sort your debts into deductible and nondeductible categories and begin paying on the debts with the highest interest rates firsts, which will save you money in the long run and help you get rid of debt that much faster.
Minimize your credit card use to get rid of debt. Credit card debt is one of the forms of debt: the average American carries more than $8,000 in credit card debt and Americans paid $50 billion in finance charges alone in 2001. Constant soliciting by credit card companies encourages you to carry multiple credit cards, juggle interest rates, and accrue more debt faster. If you are struggling to get out of debt, cut your credit card use immediately. If you must, save your credit cards for emergencies only. Include your monthly credit card payments into your budget and try to pay more than the minimum monthly payment (pay as much you can and minimize high and frequent finance charges). Look into consolidating credit card debt (see step below) into account(s) with the lowest interest rates. The sooner you stop using credit cards, the sooner you’ll get out of debt.
Consolidate your debts to make getting out of debt simpler and possibly faster. Consolidating your debt usually means taking out one lowe(er) interest and/or fixed rate loan to cover all your other multiple debts (credit cards, loans, etc.), leaving you with one monthly payment to manage, instead of juggling multiple payments of different amounts every month. This allows you to easier calculate how much you can afford to spend paying off your debt each month, and how long it will take. Debt consolidation isn’t always as easy as it sounds, though. Risks include fraudulent consolidation companies making unrealistic promises to debtors; secured consolidation loans requiring large assets, usually a house; and temporary “lower” interest rates skyrocketing after only a few months, leaving debtors with little choice but to shift debt once again, which can lead to a bad credit rating. Talk to a financial advisor (see step below) before using consolidation to get rid of your debt.
Before taking any big steps to get rid of your debt, or if you’re feeling overwhelmed with your financial planning, talk to a financial advisor. This could be someone at your bank, an accountant, or a professional debt counselor. Do your research, ask for references, and find a financial advisor you can trust, who can help you understand all the complexities of financial responsibility, explain the status of your debts, and advise you on how best to get rid of your debt.
Understand your Debt to Get Rid of Debt
Getting rid of your debt means taking control of and responsibility for your financial habits and situation. Taking control of your finances means becoming aware of the ins and outs of all your financial accounts and debts. Know your interest rates on your debt (student loans, mortgages, fixed vs. unfixed), tax deductibility of interest you pay on loans, and how the financial choices you make will affect your credit rating. Don’t be afraid to ask questions. Talk to your financial advisor or banker and have them explain anything you don’t understand. To get out of debt, you not only need to know exactly where your money is going, but why. You could also consider negotiating your debt. For help on negotiation, books like Negotiate & Settle Your Debts are available for Amazon.
Ways to free up money to Pay Down Debt
Eat in, not out. It’s incredibly easy to spend incredible amounts of money eating out at restaurants, but cutting a few meals out a week could mean a few hundred dollars more to put towards getting rid of debt each month. Invest in a cookbook, look up recipes online, and take the time to enjoy creating your own meals. If you do eat out, limit yourself to once a week, and try saving money by sharing an entree and not ordering an expensive drink or dessert.
Ride your bike, walk, or carpool to work or school. Gas is only getting more expensive and cutting down the gallons you use means more money for getting rid of debt, as well as the possibility of added health and environmental benefits
Find free (or cheap) fun for your free time. Find free or by-donation museums and music shows. Explore the parks around your town or city. Take a walk down your block. Get on your bike or rollerblades. Visit your local library. Volunteer at an animal shelter. Sit in a coffee shop and people watch. Finding free things opens up an often unexplored variety of opportunities while helping you get rid of debt.