The burden of debt doesn't have to last forever. We'll help you dig your way out. How? Well, it's going to take some hard work. Your debt is not going to magically disappear. But now is the time to learn from the past and generate a sensible, workable plan that will deal with your current debt and help prevent you from being in this situation in the future. Take a deep breath. Roll up your sleeves. And let's get to work on your debt solution.
Begin to Get Out of Debt
Make a personal assessment.
The first step to getting out of debt is to honestly assess your situation. Gather all your bills. Write down the due dates, balances and interest rates for all credit cards so that you can see which debts are costing you the most.
Next, prioritize which payments should be paid first. Determine what you can pay toward any or all debts and, based on that assessment, communicate with your lenders. They might help you come up with a repayment plan you can afford.
Learn from past mistakes.
Once you have worked through your current situation, it's extremely important to learn from any past mistakes to avoid repeating them in the future. Yes, sometimes debt is unavoidable, due to a job loss or illness. But there are many simple ways for you to become more financially solvent in the future.
Make a plan to get out of debt.
First, create a budget and watch what you spend. Track household spending and plan ahead for expenses. Relying too heavily on credit cards each month can lead to dangerous over-consumption. Try paying cash for everyday expenses. It will help you realize the actual cost of simple things like gas and groceries, and nonessential items such as coffee shop lattes and dining out. Careful budgeting and monitoring can help you live within your means.
It is also important to reduce the number of credit cards you use. Avoid using the credit cards that have high interest rates. Always try to pay off the entire balance every month. And if that isn't possible, pay off more than the minimum required by the credit card company. Remember that the only way to become truly debt-free is to pay off the entire balance.
Get help budgeting.
Click here to download a simple and easy-to-use budget calculator. (You will need Microsoft Excel)
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Stay Out of Debt
Now comes the hard part—actually sticking to the budget you've created and watching what you spend. Keep your credit card and credit line balances low. Determine your limit on each account and try to keep your balance below 50 percent of the limit. This will prevent your credit score from being docked and will help you avoid over-limit fees.
Watch how much you spend.
How much is too much? Well, when you use our budget calculator, you'll know the amount of money you have left for spending after you pay for necessities. Your credit obligations should be limited to no more than 20 percent of your monthly income. Compare your total debt payments (auto loan, credit cards, student loans and all other consumer debts—but not rent or mortgage) to your take-home pay for the month. Do not take on more debt if it means exceeding 20 percent of your income.
Learn to save money.
Try to put aside some extra money during each pay period, no matter how little that amount might be. Even $5 or $10 each month can add up surprisingly fast. And most importantly, you'll establish a good habit that will help you with your finances while creating an emergency fund.
Talk to your human resources professional about having money automatically withdrawn from your paycheck. Contact your bank or credit union for help establishing a solid savings plan for holiday purchases or for your budgeting. Also, debit cards are a great way to watch your spending. Debit cards offer the convenience of credit cards, but unlike credit cards, debit cards only allow you to spend money that is already in your account. Some debit card issuers offer a feature where your purchases are automatically rounded up to the next whole dollar and the extra amount is deposited into an attached savings account for you.
Get free credit counseling.
If you would like information on credit consolidation or credit counseling, Ask Doctor Debt recommends you visit the National Foundation for Credit Counseling Web site.
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Tips for Managing Finances
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File a Complaint
Do you have a complaint about a debt collector regarding unfair or unprofessional conduct? We encourage you to file a complaint for complaint resolution.
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