HELP FOR BORROWERS TO GET OUT OF DEBTS Tips to pay off debt quickly
- List debts by interest rate. …
- Have an emergency savings fund. …
- Always make minimum monthly payments. …
- Create a budget and remove any extraneous items. …
- Gain momentum by laddering your debts. …
- Downsize – temporarily. …
- Sell any unnecessary items. …
- Transfer your balances.
One out of every 3 households carries credit card debt from month to month, according to the 2016 Consumer Financial Literacy Survey by the National Foundation for Credit Counseling, or NFCC.
Some of those consumers are managing a modest amount of debt fairly well — always paying above the minimum on every account and holding back on new credit spending until the balances are paid down.
For others, however, debt is an oppressive burden that has them ducking creditors’ phone calls and struggling to keep up with even the minimum payments each month. Some may even be on the verge of bankruptcy.
If you’re overwhelmed by debt, you need to make some quick and perhaps drastic moves to have any hope of getting free.
“It’s not just a matter of tweaking the way you’re using your credit cards. It’s a matter of reeling in debt that’s about to send you over the cliff,” says Bruce McClary, NFCC’s vice president of public relations and external affairs.
Read on for a step-by-step guide on how to get out of debt and live debt free.
It’s the first thing they tell you to do in the event of a life-threatening injury, and the same rule holds true when your financial survival is on the line. If you’ve got so much cash flowing out to creditors that you can’t meet your basic needs with what’s left and the possibility of bankruptcy is looming, step one toward recovery is to stop adding to that debt.
For some people, the quickest way to curb spending is to become a cash-only consumer, says Scott Stratton, president of Good Life Wealth Management in Dallas.
“It can be shocking, but it’s very effective,” Stratton says. “If you give yourself $200 a week to spend on all your groceries and gas, then if you use that up in four days, you’ll just have to cope for a couple of days.”
If your credit score is in good shape, a balance transfer to a lower interest rate credit card might be worth considering, Stratton says. But if your credit history has you on shaky ground, you might want to look into debt consolidation or negotiating a payoff plan with your credit card issuers.
If you’re feeling like the guy in that old TV ad who’s lamenting, “I’m in debt up to my eyeballs,” it may be hard to see a solution and even harder to move past your anxiety to implement it.
McClary suggests trying a little visualization therapy. Picture yourself debt-free.
- How would you feel?
- How would you live?
- What longtime goals would you be able to accomplish?
You may be wondering whether you should spend time daydreaming when you might be getting a collection agency letter any day now, but McClary insists this exercise isn’t trivial.
“A lot of people brush that off and say, ‘That’s fluff,’ but that’s what’s going to keep you motivated through what may be a long and difficult process,” McClary says.
So you’ve put the credit cards away, done whatever you can to lower the cost of your existing debt and found a long-term goal to motivate you along your debt-busting journey.
Now it’s time to take a thorough review of your budget. Track every dollar coming in and going out so you can get a realistic idea of how much you can pay against the debt.
Thomas Nitzsche, a credit counselor and media relations manager for ClearPoint Credit Counseling Solutions in Atlanta, says many of his clients are surprised when confronted with their true budgets, because they have relied so long on credit cards to stretch their spending capacity.
“When they cut themselves off of that line of credit … they often don’t have as much as they think they do to begin repayment,” Nitzsche says.
McClary advises following the 50-20-30 rule of budgeting: Allocate up to 50% of your budget to fixed expenses like mortgage, rent and car payments; 20% to savings; and 30% to variable expenses, especially discretionary spending for things like hobbies, recreation and dining out. That 30% zone is the first area to target for cutting back, McClary says