Being in debt is a stressful situation that haunts you each and every day. The money you owe hangs over you like a rain cloud. For many, debt is a vicious cycle that they can not escape. Interest, late fees, etc. pile up making what they owe more and more impossible to conquer. In fact, according to a CreditCards.com survey, one in eight Americans don’t think they’ll ever be able to pay off their debt.
Despite how difficult it may seem, you can beat the odds. You can climb your way out of debt. This article will show you the path and answer the question how-to get out of debt once and for all.
Step 1: Know How Much You Owe
Before you can figure out specifically how-to get out of debt, you must know how much you owe. This may sound obvious and easy but for many this first step is actually the hardest part. Some people would prefer to be blissfully ignorant, so to speak.
Sit down and go through everything. Be sure to:
- Look at all bills – pull out your most recent loan and credit card statements.
- Call (or check online) for loan payoff amounts – don’t forget your student loans! You can check the www.studentloans.gov/ National Student Data System for this information.
- Pull a credit report (it’s free!) to identify any additional debts you may have forgotten – you’ll also want to check your credit report for accuracy. Learn more about credit reports and credit scores in this article.
- Don’t forget to include loans from family members and friends.
The goal here is to tally up any and all debt, so be as thorough as possible.
Add all of your debts to one list. Include the:
- Name of the creditor
- Interest rate
- Minimum monthly payment
- When payments are due (ex. first of the month)
- Contact info such as where you can go to make a payment and who you can call with questions
At this point, you may want to also use the debt repayment section of the “Our Finances by Month” page in the free printable budget binder to help you record each month’s debt payment so that you can stay on track and hold yourself accountable.
Step 2: Swear Off Borrowing
You will never successfully master how-to get out of debt if you keep borrowing money. Take a moment to consciously swear off borrowing money. Don’t use your credit card. Don’t finance furniture, cars, etc.
To help avoid the necessity of borrowing money, work on establishing an emergency fund. Set aside a few dollars whenever you can (every little bit helps) to build up an emergency fund. If you do not have an emergency fund and something happens (ex. you get in a car crash) you’ll be tempted or forced to use your credit cards or borrow money from others to cover the expense.
Step 3: Get Organized with a Budget
Learning how-to get out of debt will take some serious organization. Once you’ve completed steps 1 and 2, it is time to put together a comprehensive budget. Your budget should track all money going in and out of your account and when. For example, answer:
- On what date do you get paid?
- On what date is each bill or loan payment due?
- How much is your pay check (after taxes, benefit deductions, etc.)?
- How much is each bill payment or loan payment?
Once you have documented your hard costs (ex. rent, car payment, student loan payment, etc.) and income, you’ll also need to factor in luxury items such as eating out, entertainment, shoe shopping, etc.
The key here is to be realistic. You want to cut your spending… not fully eliminate it. Let’s face it, you’re not going to completely deprive yourself of all fun. However, you need to live within your means. If you only have $100 left over after paying all your bills you can’t spend $150 on eating out each month.
Step 4: Negotiate
One answer to the question “how-to get out of debt?” is to negotiate. Your debt and interest rates are not set in stone. Many people feel embarrassed to try and talk someone down on what they owe or the interest rate on a loan but they shouldn’t. You should always try to negotiate.
Start by calling your lender and asking for a reduced pay-off amount, waived late fees, or a lowered APR. This really works; a report from CreditCards.com found that two-thirds of individuals who asked for a lower rate got it. Don’t you want to be one of those people?
If your lender won’t negotiate you still have other options to reduce your rate. For example, you can transfer your credit card balance to a new card that offers 0% interest. However, be sure that the APR after the promotional period isn’t actually higher than the rate you have now in the event that you are unable to pay off your debt before the promotional period ends.
Step 5: Put Extra Cash Towards Debt
If, at any point, you come into some extra cash like a tax refund, inheritance, or bonus, use that money to solve the problem of how-to get out of debt. Use that money to help pay off your debt. Yes, it is tempting to treat yourself to a vacation or splurge on a new flat screen television but in the long run, you’ll be much better off if you allocate that money to lowering your debt. This is how to get out of debt.
Step 6: Set Up Automatic Deductions
When you’re struggling with how-to get out of debt, don’t make things worse by racking up late fees and penalties. Take the time to set up automatic payments wherever possible to ensure your bills and debt payments are made on time. Not only will this ensure you don’t forget to pay up but it’ll help you know exactly when money is coming out of your account.
If you can’t set up automatic deductions, use an online calendar or phone calendar to set up reoccurring reminders to help you remember to make payments on time.
Step 7: Check Your Progress
Once you’ve documented your debt, created a budget, negotiated, and set up automatic deductions, you’re well on your way to answering the question of how-to get out of debt… but you aren’t done. You must continually check your progress and make necessary adjustments.
You should check your progress monthly and make adjustments if you aren’t staying on track. Be sure to check your:
- Credit score to see if it is improving. You can use sites like Credit Karma and Credit Sesame which are free.
- Budget – do you have new income (more or less) or new debts/expenses that should be added? Do you need to lower the amount your spending on “luxuries” like eating out?
- Credit card and bank statements for any errors or additional expenses that should be added to your budget.
On a quarterly basis, you should also pull a free credit report to check your progress.
Step 8: Ask for Help
Being in debt and not knowing how-to get out of debt can be embarrassing; however, you should not be afraid to ask for help. Ignoring the problem will not make it go away… in fact, ignoring it will only make it worse. If you simply don’t know how-to get out of debt or know that you can’t pay off your debt as things stand now, you should reach out for help.
You have a couple of options including credit counseling agencies who may be able to assist you with consolidating your loans, reducing rates, or even reducing the total amount you owe and bankruptcy. However, if considering bankruptcy, be sure to consult an experienced attorney and be very specific about your types of debt. Not all debt can be cleared by bankruptcy; for example, typically, student loans can not be eliminated by filing for bankruptcy.
Step 9: Keep Learning
The more you can learn about finances the better. Understanding how money works, for lack of a better term, will help you understand how-to get out of debt. Luckily, there are a slew of awesome, often FREE resources out there to get you started and help figure out how-to get out of debt.
For example, follow Freebie Finding Mom’s Smart Money Saving Tips Pinterest board.
Another excellent resource that will show you how to do everything from create a budget to save for retirement is the “Secrets of a Successful Family CFO” eBook.
Use these 9 tips to help you, once and for all, successfully solve the problem of how-to get out of debt!