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Being Debt-Free is Not Just a Dream

If you think that you are not among those who can get out of debt, you are dead wrong. You will need to develop a plan that allows you to look forward to a debt-free future by using the strategies being here listed for you. The plan will take sacrifice and discipline, but once you have accomplished your goals, you will experience a freedom and lifestyle that few know

Your Budget – The Critical Piece

You have to have a budget. If you do not, you have no way of knowing where your money goes. To develop a budget, you must first spend a month writing down each and every expense you incur, no matter how small. If you spend $1.00 on a morning coffee at the gas station, write it down. You cannot leave out anything.

At the end of your recording month, divide your expenses into categories, listing the essentials (rent or mortgage, utilities, groceries, gas, etc.) in a column that will be permanent. These are things you must pay no matter what. All credit card and other revolving debt payments must be placed in this column as well. The other columns may be divided as you determine, one for non-essentials but important, and one for pure luxuries that you can most certainly do without. Add up columns two and three. This total is the amount that you can now apply to paying off your credit card and revolving debt. Take the total and apply it to the smallest credit card or revolving debt you have. The goal is to reduce this “bad” debt, one at a time, until it is eliminated completely. Depending upon the amount of debt you have, this could be a lengthy process, but it is completely necessary if you are going to look forward to a debt-free future. To help you stay on your path, find a friend or relative who will support and encourage you to stick with your plan. Reward yourself as you pay off each debt, by splurging on some item or type of entertainment you have coveted.

A Few Tricks

As you pay off your debt, there are a few things you can do to increase the speed of this process. Consider any or all of the following:

Pay your credit card as soon as you receive the statement. Your interest is charged on an average daily balance, so the faster you pay it down, the less you will be charged the next month. Dump as much over the minimum payment as you possibly can on one debt at a time, because everything over the minimum payment goes directly toward the principle of the debt.
Contact your creditors and negotiate a lower payoff amount. Many will negotiate with you if you are 60 days late on payment. If you have a lump sum of money, tell your creditor that you can pay the balance in full if he will accept 50% of the total balance. This kind of agreement can affect your credit rating, but there will be time to fix that later.
Consider bill consolidation. If your credit rating is good, you can perhaps secure a consolidation loan from a credit union at a lower interest rate than you are currently paying on your other debt. Once secured, dump as much money onto this loan as possible.
If you own a home, check the prospect of re-financing, rolling your current debt into the re-finance, an action that will lower the interest rate significantly. The caveat to this action, however, is that you will need to cut up your credit cards, because you have just rolled that debt into a 30-year mortgage. Incurring additional debt is a big no-no! You then need to make additional principle payments on your mortgage, so that you get it paid off much more quickly.
Get the mortgage paid off as quickly as possible. In the early years of a mortgage, the bulk of the payment is interest. By paying double the principle amount, you can cut your mortgage payoff in half, saving thousands of dollars over the life of the loan.
Bankruptcy is a serious step, but it can give a debtor a fresh start, in order to regain monetary stability. If you are completely overwhelmed with debt, and cannot see a means to meet your monthly obligations, much less make significant dent in the debt, you may want to consider this option. It will affect your credit for 10 years, but may be the best recourse.
7. If you have accounts in collection, do not engage in conversation or negotiation on the telephone. Require only written communication so that you can determine if the collection firm is acting on behalf of the original creditor or if it has in fact purchased your bad debt. If the latter is the case, you are in a position to negotiate a significantly lower payoff amount, because that firm has paid only pennies on the dollar for your debt.

A Word About Credit Rating

Your credit rating reflects the amount of debt you have as well as your payment history relative to that debt. If you take some of the measures listed above, your credit rating may be affected in a negative way. Sometimes, this is preferable to the other options you have. Remember, there are lots of ways to increase your credit score once it has been damaged, and you can still look forward to a debt-free future.