Sometimes things get out of hand. It doesn’t mean we’re wrong, bad or dumb. It just means our attention was focused in an unproductive direction. When this happens, the best way to regain control is to shift focus. In this case, it means executing a step-by-step guide to dealing with debt.
Determine How Much You Owe
Before you can craft a plan, you have to know what you’re trying to do. Seeing the exact number serves two purposes. It will help keep you focused and it’s necessary to determine your plan of attack. List all of your balances, along with the type of debt, the associated interest rate and the amount of the minimum payment.
Compare Your Income to Your Expenses
In addition to your credit debt, list your utilities, garbage, water, phone, fuel, internet and all of your other bills as well. You need to know exactly how much you’re paying each month, so you can compare it to how much you make each month. If you’re making more than you pay, you’ll have a few more options than if you’re paying more than you make.
Look for Ways to Make More Money
Regardless of your debt to income situation, making more money is always a good thing. It might take the form of a part-time job, a raise from your current employer, or starting some sort of business. Do whatever you can to get more money into your monthly budget to help pay debt down more quickly.
Keep Track of Your Spending for a Month
Every time you make a purchase, record it in a ledger, so you can see where your money is actually going. You’ll find the $3 you spend each morning for that chai latte adds up to $90 a month; which would be better put toward eliminating your debt. Most budgets have similar “leaks”, that when plugged can you help pay down your obligations.
Try to Refinance Your Debt
If you have a mortgage, refinancing could bring down your interest rate. You might also consider getting a consolidation loan to pay off all of your high-interest debt. Just make sure you don’t wind up paying more. It’s really easy to make a 20-year loan look attractive, but when you factor it out, you’ll find you’re actually be paying a lot more. You can also contact your credit card issuers and request an interest rate decrease to help you repay your loans more quickly.
Craft a Plan of Attack
If you still owe more than you make each month, look into credit counseling or debt relief. However, before you sign up with anyone, research them to make sure they’re reliable. Look for information like this Freedom Debt Relief review to get an independent assessment of the nature of the company. If you make more than you owe, you can use the snowball method to pay your debt off more quickly.
List all of your debts in order from highest to lowest. Calculate the minimum payment on all of them. If you’ve been paying more than the minimum amount on each one, stop doing so on all but the one with the lowest balance. Make minimum payments on all of the others and add the difference to the payment you were previously making on the one with the lowest balance. Continue working your way up until you’ve paid them all.
This step-by-step guide to dealing with debt will help you get your situation back in hand. Once you do, start saving the money you used to pay off your debts. You’ll have a pretty significant amount of cash you can put away each month, which could save you from ever having to go into debt again.