When you consider that more that 50% of all U.S. adults spend more than they earn, it’s easy to see why our nation is in debt. Consequently, many people will file bankruptcy or just default on everything and walk away from it all. On the other hand, there are those individuals who get tired of living from one paycheck to the next and want a better life. They want to build their credit score and get back on the path to financial stability. In order to become debt-free, you have to develop a plan and stick to it. With the right debt relief plan, you can get out of debt without getting a new loan.
6 Steps to becoming Debt-free
Having a plan and executing it will eventually get you out of debt. However, it takes three critical elements to accomplish this task – budgeting, determination, and patience. Depending upon the amount of debt that you need to pay-off, it is important to start saving to pay off debt and rebuild your credit score. Here are steps to getting out of debt:
Gather all your important financial data – you have to know where you stand financially so get your recent monthly bill statements together (credit cards, loans, etc.). Next, get a copy of your credit report and look for any errors. Finally, find out what your FICO score is.
Make a list of all money coming in and going out – you’ll want to include the creditor, your balance owing, the interest rate, and the minimum monthly payment. Figure out your net income after taxes and deductions so you can calculate what’s left after all the bills are paid. Be sure to include items that don’t appear on your credit report. This would include groceries, recurring bills, utilities, etc.
Negotiate with creditors to lower your interest rates – if you’re overwhelmed with credit card and/or loan debt, getting lower interest rates is a good start. If your creditors cooperate, start paying more than the minimum on these items every month. If one of the items your trying to pay off is your mortgage, make sure you won’t get hit with a prepayment penalty.
Figure out a way to earn additional money (legally of course) – naturally a second job would help but it’s not your only option. You could look for a side gig like being a dog walker on the weekend. You’d be surprised at how much that would help even if you don’t think it would.
Cut your monthly spending – when you start to earn extra money, cut your spending. For example, you can pack a lunch for work and eat out less frequently. The key is to learn where you spend money foolishly or needlessly and stop it.
Last but not least, create a monthly budget and STICK TO IT! This is one of the harder steps to accomplish but with a little due diligent, you can do it.