If you’re buried in what feels like financial quicksand, you’re going to need to take action if you hope to recover. The good news is that there are ways to get back on solid ground.
Here’s what to do while digging your way out of debt.
Face Your Problem
Tossing your unopened bills into a box is not a winning strategy for getting out of debt. Your problems are not going away. In fact, if you do nothing, they will only get worse. It is what it is, so let’s figure it all out.
Start by gathering everything that pertains to your finances: bills, credit card statements, your budget, and start calculating. If your required monthly payments are already more than your net income, you’re going to have to take some serious action, a la getting a second job, downsizing, or even filing for bankruptcy.
How to Repay
If you’re wondering where to find credit card debt relief, you need to figure out which bills to pay first. Some experts say the best approach is to attack the balance with the highest interest first, followed by non-deductible low-interest debt. After that, tackle tax-deductible debt.
You also need to stop using your credit cards, which usually carry high interest. Stick with cash and when that’s out, that’s it. Create an emergency fund so that when something unexpected arises – a car repair, say – you don’t have to pull out plastic and dig yourself deeper in debt.
Assess Your Credit
Get a copy of your credit report and check it for errors or clues as to what got you in your mess. It only takes one or two skipped payments to see your credit score drop into the “risk” zone for creditors.
Start Damage Control
Employ automatic payments where possible and tighten up your budget to get debt and spending under control.
If your credit is still decent, try to get a consolidation loan, wherein your unsecured debts are rolled into one, and at a lower interest rate. You also may want to consider a balance transfer card, which allows you to shift high-interest debt to a card that comes with 0% interest for six to 18 months. Just make sure you’re able to pay off the transferred debts before the regular interest rate kicks back in.
You can also tap a home equity line of credit, if you have access, and pay off higher-interest debt.
Don’t close your credit cards to avoid using them, though. Leave them at home instead. Closing cards lowers your credit availability and raises your credit utilization ratio, both of which can worsen your credit score.
Grab an Extra Shovel
When you can, throw extra cash at your highest-interest debt, which can accelerate the pay down period. This tack is called debt avalanche. After you’ve gotten rid of the highest-interest debt, double your payments on your next-highest debt.
Make Decisions
It won’t be easy to get out of debt, but you can do it. If you’re exceedingly delinquent, you’ll need to take drastic measures. But perhaps you simply need to cut costs where you can – more cooking instead of dining out, for example – or sell any nonessential items you can live without. Put proceeds toward your highest-interest debt.
Renegotiate Terms
Do your homework before meeting with creditors and be sure to have all your paperwork in order. Tell them what you’ve done to avoid defaulting on your debts and ask to renegotiate the debt you have with that particular creditor. You may be pleasantly surprised. Or you can always get help through a debt settlement company such as Freedom Debt Relief.
As you can see, when it comes to digging your way out of debt, there are several ways to go about it. The most important thing is to act now. With a patience and perseverance, you’ll be out of that hole in no time.
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