| Manage Debt Yourself |
| By Credit Federal |
Published
03/26/2008
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Debt Help
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Get Out of Debt Free Do-It-Yourself Tips
Living beyond our income has become a frequent habit for many of us. And that's where we begin to manage debt, by breaking that habit and by no longer making excuses for it.
Since debt can take a toll on our patience and nerves, discuss any anxiety you may feel with friends and family. Just be prepared to also hear their financial woes, too, and don't further victimize yourself as thinking it's normal for people to be in debt so it's OK to be in debt. It's not OK. So instead of jumping on the debt bandwagon, use each other as supporters for your debt recovery goals. Also consider a professional organization that deals with debt reduction, like the nonprofit National Foundation for Credit Counseling.
The next step is to know just how badly in debt you are and the causes. Sit down with pencil and paper and list your current budget (how much you currently make and how much; and to whom, you owe). Only then can you tally your income and subtract your expenses to see if you are within or beyond your income. To help you with this, download CreditFederal.com's free personal budget software.
To effectively track expenses, make sure you list all your expenses, including dining-out, cigarettes, sodas, vending machine purchases, etc. It may amaze you to see how all those little expenses add up. Also list payments such as credit cards, but add in more than the minimal monthly requirement. Wheareas paying only the monthly minimum is better than not paying at all, doing so costs you a lot more in interest in the long term.
Also start an emergency loan savings account which you can eventually accrue at least three months of expenses, so if you get laid off, injured, etc, you can still pay your bills for up to 3 months.
Setup bill reminders so you get all your payments in on time and avoid late fees and interest charges.
After you've identified your income, expenses, and setup a plan to save money for an emergency, now you can look at ways to reduce bills. Start by listing your interest-accruing expenses, starting with the highest interest rate to the lowest. Focus on paying off the highest interest rate balances while still making timely payments (even if only the minimum) on the others. Your budget will dictate how much you can devote to paying towards your balances each month.
If you already have money in savings, consider paying off what you can. The amount of savings interest you earn is generally less than the interest you pay on debt. Use any extra cash such as bonuses, cash birthday gifts, etc, to pay on debts. And; if possible and necessary, work overtime or get second employment.
To cut expenses, eat at home instead of dining out. Even a low cost meal is more than you think after you've added in the tip. Also avoid buying fast food, coffee, sodas, and vending machine snacks.
Don't make credit purchases, as you tend to forget how much you've charged and owe. Instead pay with cash only. After the bills are paid, allot yourself a certain amount of cash for gas, groceries, etc. That way, each time you dig into your pocket you know where you stand.
Dump unecessary bills like your cable, satellite, even your internet service because you can use the internet at your local library.
Patience: Like we mentioned in our opening statement, debt can wear away at your patience. As you slowly pay off bills, you'll be tempted to take a quicker approach, like borrowing money; such as a debt consolidation loan, to repay bills. Before you jump to a debt consolidation loan, consider the long term impact. It may be best for you to slowly payoff your bills than to do so in one lump sum that might endanger your financial security or cost you greater interest payments in the long term. You certainly don't want to chargeoff debt either, as that will severely impact your credit, the ability to get new credit, and can raise the interest rates charged on existing credit. The same holds true should you want to negotiate settlement. Even though a creditor agrees to reduce your debt and take a payoff amount instead of the full balance, the creditor may place entries which give you a bad credit score, thus affecting your credit the same way as a chargeoff.
Another problem with debt consolidation, chargeoff and debt settlement, is that it will tempt you to once again spend, spend, spend and run up credit card charges, putting you right back where you started only now you have other problems... either the huge debt consolidation loan to also repay, inability to get new credit, or interest charges get raised on existing lines of credit.
And, if you balance transfer credit card debt from one card to another, destroy the old card so you won't be tempted to run up its balance again.
Don't use a home equity loan to payoff credit card balances. Even if home equity rates are lower than your credit card interest rates, you'll be in debt again should you re-run up your balances.
Don't borrow from your 401(k) to pay off debt, and forego credit repair companies that may charge you hundreds of dollars to fix credit report records.
Don't over extend yourself to buy a house. Buying too costly of a home could jeopardize ability to meet other expenses and desires, like vacations, restaurant dining, college savings, retirement savings, your emergency fund, etc.
Stay out of new debt by sticking to your budget and to stop using credit cards. Cancel and cut up all but one of your cards, the one with the lowest interest rate. Use that card only for emergencies. If you charge, pay off the balance in full every month and prevent interest charges. To deter temptation, place a request to stop credit card mail offers.
Order your free credit report annually and check for errors.
Ask your creditors for lower rates. If you've been a good paying customer, they most likely will lower your interest.
To avoid temptation of impulse purchases, don't take credit cards with you. Shop with a list and buy only what's on the list.
Don't use retail charge cards for the discounts. Chances are that card carries a high interest rate that you'll have to deal with if you don't pay off balances in full each month.
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