We’ve all found ourselves at some point in our lives a little over stretched and pinching pennies. It’s tempting at times like these to depend on credit to ‘get through’ for a time, but it’s a mistake. The interest rates and higher payments can eat up a paycheck in no time at all. So what to do if you’ve found yourself in this position? Is there hope? Can you get out of debt without claiming bankruptcy? The answer is: Yes! With some discipline, hard work and a little time, you can work yourself out of your hole and get back on track to financial freedom. Let’s get started.
Making a Debt Plan
The first thing you need to do when you’re starting your journey to financial freedom is sit down and make a plan. Gather together every single monthly bill you have and write them out. How much is on each credit card? What’s the interest rate? How much do you owe in medical bills? Is there a time limit on when you need to pay it off by? And worst case scenario, what has gone to debt collection. Lay it all out, and then separate them into categories.
· Monthly bills you need to pay to live.
This includes rent, utilities, groceries, gas, cable and internet services. Things that we consider a necessity. This is the category that we’ll be trying to cut down a little to pay some other things. Do you really need cable? Can you go with a subscription to an internet based entertainment company like Netflix or Hulu instead? See if there’s anything on this list that you can scale back a little.
· Credit. This includes credit cards, student loans, car payments. Anyone that you owe money to and the account is in good standing. Once you have them separated, arrange them from lowest debt amount to the highest. Budget to pay the minimum payment on every card except for the lowest one. That one, pay as much as you possibly can. Once it’s paid off, roll that amount plus the minimum payment of the next smallest card every month. It’s a snowball effect. You keep paying the same amount of money each month, but you’re paying one card off completely quicker than the others. Don’t skip payments! And don’t be late on payments either, this can have a serious negative effect on your credit score. Just keep rolling the amount up the line until they’re all paid off. Trust me, this takes time. But it’s worth it in the end.
· Debt Collectors. I used to work for a debt collection agency, (don’t hate me) and I’ll give you some tips. They’re paid to collect from you. Ignoring them won’t make them go away. Often times, if you have a large bill and you can come up with half of the money to pay it, they’re willing to take a deal. Call them. Negotiate with them. Work with them and communicate. A little communication and honesty can get you a long way with your debtors.