Top 10 Tips to Start Getting Out Of Debt
Top 10 Tips to Start Getting Out Of Debt
As the holiday shopping season approaches, more and more I hear people discussing how overwhelmed they feel with budgeting and their debt load. The temptation to overspend on holiday gifts is very real to many people, and they max out credit cards planning to find a way to deal with it in January. It’s not too late to make a plan, budget for the holidays and try not to charge if at all possible. You have to be strong to resist all those promotions to “SAVE AN EXTRA %% on today’s purchase if you open an account with us!” unless you truly can afford to pay the balance in full each and every month. These tips are applicable any time of the year to help you whenever it is that you decide to tackle your debt. Kuddos to you for being brave enough to take on this task, eliminating debt is truly freeing, and I’d love for anyone who has been successful to leave additional tips in the comment section below. If you have a question and need help, leave that in the comments too, my readers are kind, and would love to offer words of encouragement to you.
Top 10 Tips to start getting out of debt:
- STOP Charging. If you don’t have cash to pay for it, you can’t afford it.
- Make a list of ALL of your incoming money and debts. You need to know where your money is coming from AND going.
- Create a workable budget AND STICK TO IT. Once you know how much money is coming in, you can allocate where it’s going.
- Pay yourself FIRST. You need to set up a savings account, piggy bank, or some secure place to store some savings for emergencies. Even if you can only save $20 per month, you KNOW emergencies happen, and you need a contingency fund to pay for them. When just starting out, I’d say set a goal to save 10% of each paycheck, but that isn’t always feasible in reality. So, save as much of that as you can. This may mean cutting out extras temporarily, but you can add those back in once you get your finances under control.
- Try to lower your interest rates. This isn’t always possible, since you are at the mercy of your lenders to approve this. Each person’s situation is different, but it’s worth a call to see if this is possible.
- Look for ways to increase your income. Perhaps you can get a 2nd job, or sell some things, take online surveys, perform some secret shops, etc. But, if you can get some extra cash coming in, you can apply that to a debt.
- Determine your % of debt on each account. If you can get each account under 80% of its limit, you can increase your credit score. For example, if the limit is $1,000, try to get the balance below $800.
- Next, payoff the smallest amount owed. Once each card is below 80%, if your score is in bad shape, try to get them under 60%. If the score is ok and you just want the debt GONE, payoff the smallest balance to give you a boost of encouragement to keep going.
- Payoff highest interest rate balance. Snowball the amount you were paying towards the smallest balance, add it to the payment you’ve been making on the highest interest rate account, and you will payoff this account faster. Continue this process with each additional account.
- Pay ON TIME. Even if you can only pay the minimum balance, and are applying extra income sources to accounts, it is imperative you pay the minimum payment on time each month. You can always send extra payments, but meeting the due date is so important. Once you’ve made on time payments on each of your accounts for 6 months, you are in a better position to call and ask for rates to be lowered. Not to mention, on many accounts, if you are late with ANY company, they can raise your rate to their max rate.
It’s always important to READ your terms and conditions with ALL accounts. Knowledge is power. Know when your payments are due, how you can make them, and under what conditions your rates can be raised/lowered. If you are making on time payments and get your percentage owed balances under control, you should notice improvements in your credit score.
It’s also very important to make sure you are monitoring your credit report regularly. I recommend using the free annual service, and spacing your requests out. Order 1 every 4 months so you can see the improvements over time. Likely you didn’t get into debt trouble overnight, so it’s unreasonable to expect things to improve overnight. Most people that I have known personally, usually see massive improvements in about 2 years of paying on time with balances under that 80% mark, but everyone’s situation is different.