Do you remember when your parents bought you your very first bike? Remember that excitement you felt to show off the new Huffy to the neighbors? Inevitably with the first bike came the first fall, complete with knee scrapes and a bruised backside. But no, that never stopped you, or anyone for that matter! You hopped right back onto that bike and began to ride again, learning new tricks! You became such a good rider that falling was a distant memory!
And while getting back up and dusting yourself off may seem insurmountable, getting out of debt isn’t all that much different. Yes, the stakes are much higher, but the desired outcome is actually quite the same, start over and try again, learning new tricks along the way. Read on to learn the top 10 tips for getting out of debt to kiss that debt goodbye!
Budget Budget Budget!
First and foremost, start a monthly budget! Budgets help you:
- Determine your true monthly income;
- Compare this to your true monthly debt;
- Map out a plan; and
- Pay down existing debt.
This process is imperative to starting the process of getting out and staying out of debt. It is difficult to develop a plan without knowing what you have to start with and where you need to go.
Paying Down the Debt
Once a budget is in place, you can start to knock down your bills. The best suggestion to get out of debt is:
- Start with accounts with higher interest rates, allowing you to start paying the actual balance faster and ridding yourself of the debt.
- Pay down the balances to approximately 30% of the available balances.
- Cut the cards! Any cards less than a year old with a high interest rate should be paid off and tossed. The young age of the account will do minimal, if any, damage to your credit if it is deleted. Only keep cards that are used and needed.
Credit cards can ruin any true plan to get out of debt. By ignoring the high interest credit cards, you are allowing the credit card companies to take your hard earned money away from you and line their own pockets with it. The faster these cards are paid down and destroyed, if possible, the closer you are to living a debt free life! Furthermore, creditors determine whether you are a good risk based on t he percentage of debt to available balances you maintain. 30% is typically the cutoff point before you are considered to be a higher credit risk for the good credit, such as cars and homes.
Cash Only, Please
Stop using the credit cards to pay for life! Getting out of debt is easier if you don’t rack it up in the process. It is important to keep three credit cards open to raise your credit, but only charge on them small items that can be quickly paid off, like groceries, not the large 60″ LED TV!
And since, you are living on cash, you must remember, No more shopping sprees. Based on the new budget, you learned what your true flexible spending is. Don’t overdo it, and then need to run up the credit cards again. Spend within your spending limits! By cutting extra expenses, like that daily Venti Double Latte from Starbucks, you may find you actually have more money than you thought.
In keeping with finding new room in your budget, don’t go backwards by taking out a loan, such as a debt consolidation loan, to help get out of debt. That is simply trading one debt for another. And worse yet, it actually lowers your credit score!
Saving and Earning More Money
Staying out of debt is much easier than getting out of debt:
- Look for bargains and deals;
- Use coupons whenever available;
- Search the web for coupons and deals
- Negotiate when making a big purchase
- Use barcode apps when shopping for high priced items; or
- Invest in a coupon book.
You may also want to earn extra money by:
- Take on a part-time job; or
- Have a garage sale.
Sometimes, the additional income earned by bargain hunting and an extra job can allow not only for getting out of debt, but for building the all-important savings! Once savings are restored, it is easier to avoid future debt pitfalls.
And When All Else Fails…Call for help!
When all else fails, remember there are professional non-profit agencies that specialize in helping people get out of debt. These companies are adept at negotiating with creditors and achieving more manageable balances with lower interest rates. While these arrangements may affect your credit for the three to five years you are in the program, when you have finished paying the debt down, you emerge with a clean slate and sparkling credit!