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Steps to Take to get out of Debt

Girl on StepsLiving beyond your means is an easy thing to do. With an abundance of credit card offers and pay-later plans, many Americans quickly find themselves overwhelmed by debt. While you may think that it is impossible for you to ever pay down your debt or obtain a solid credit score, with careful planning and dedication, it is possible to obtain financial freedom. Reducing your debt can not only improve your credit score, but improve your life by eliminating the stress that comes from having to pay a seemingly endless number of bills.

When debt starts to take over your life, you can take control of it by being proactive. Below are several steps that you can take to help get out of debt:

STEP 1) Calculate your monthly expenses. Think of all of the money that you spend every month (rent/mortgage, food, utilities, gas, childcare, entertainment, etc.). Look for ways that you can reduce your spending by at least 10 percent.

STEP 2) Develop a list of all of your debt. On your list, be sure to include the monthly payment, the total amount that you owe, the interest rate and length of the term for each debt that you have. Knowing what you have to pay back can empower you to create a successful plan to get out of debt.

STEP 3) Formulate a plan. Determine which debt you want to pay off first. It is usually best to choose the debt that has the shortest term (you can determine the term by dividing the total amount of a debt by the monthly payment that you owe). When you have selected a debt to pay off first, pay your monthly payment plus the 10 percent that you reduced your spending by. Pay the minimum amount due on the rest of your debts. When you have paid off one debt, choose the next debt with the shortest term to start paying down. This time, pay the amount due each month, plus the 10 percent that you reduced your spending by, plus the amount of money you were previously spending to pay off your first debt. Continue to pay the minimum amount due on the rest of your debt. With careful planning and commitment, you can begin to regain control over your finances.

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STEP 4) Create a payment calendar. You may use your everyday calendar for this purpose. Write down the day payment is due for each debt that you have; being organized can help you stay on top of your debt and avoid missing payments that incur late fees. If you find it difficult to make your payments every month, you can set up automatic withdrawals from your bank account to pay most creditors.

If you cannot afford the debt that you have, or are not sure how to create a plan to get out of debt that will work for you, you may want to consider speaking with a bankruptcy attorney to discuss the relief options that are available to you (see How to find a Bankruptcy Lawyer). A bankruptcy attorney should not only be able to explain the different types of bankruptcy (see What Type of Bankruptcy Should I File), but help you determine the best course of action to take to gain control of your financial future.