10 steps I used to get out of Debt

(This is a guest article by Sharon Marthers*)

There were times when I used to allow my heart to rule as far as my personal finances are concerned. I thought it was the coolest approach that I could ever have until I realized that it wasn't a good idea after all! Well, I had to admit that one doesn't get into a debt situation in a jiffy because it builds up gradually and seeps into one's finances in a clandestine manner. Guess what? It even took me a long time to get out of it!

So what did I do to get out of it anyway?

I came across billboards that offered me debt help and was requested to enroll for some kind of debt relief option in the process. They seemed they might be effective initially, until I found out that they might not be the same for all and sundry. So, I took some personal measures first, such as, evaluating my financial situation and then finding the particular debt relief option that would be suitable for me. In the midst of this storm, here are some measures I used in order to withstand the storm and come out of it:

  1. Avoid borrowing money to get out of debt

  2. It is not a very bright idea to take loan from Peter to pay off Harry. It could have added up to my existing debt burden. If taking a loan to consolidate all debts, it is always better to use collateral. In case of a collateral (secured loan), the rate of interest is also less and if you fail to make payments your collateral is taken away by the creditor. So, if at all you are availing another loan, try to take a secured one as you will always have the fear of losing your assets due to non payment.

  3. Use cash and minimize credit card usage

  4. Although you are using plastic money to shop around, sooner or later you have to pay that money. You cannot defer the payment for months. So, if you are using cash, it is better because you tend to shop around depending on availability of cash.

  5. Attend to debts that have higher interest rates

  6. You can wrap up your debts and get out of debt by following 2 methods. You can either make payments for the debts that attract a very interest rate. Alternatively, you can attend to debts that have lower outstanding balances. However, I opted for the former.

  7. Pay more than the minimum monthly payments

  8. You may have come across precepts urging you to make payment for the minimum balance every month. Undoubtedly, it is true but you should pay more than the minimum balance. By doing so, you not only make payments for the interest but your principal amount also reduces in due course.

  9. Work out a budget and track expenses

  10. Work out a budget and spend accordingly. Identify expenses that can be curtailed. The amount you save can either be used to pay off debts or you can make an emergency fund with it.

  11. Check your credit report periodically

  12. You are entitled to a free copy of your credit report every year from the 3 credit bureaus. Get hold of your credit report and check for irregularities. It may be that you have managed your finances very well but the same isn’t recorded in your credit report. Your report may have inaccurate information entered. If it so happens, get it rectified without delay.

  13. Read TOS while accepting credit cards

  14. Reports suggest that majority of the credit cardholders fail to manage their credit cards well because they are not aware of the terms and conditions when they accept the cards. When they are implemented, you fail to cope with the same.

  15. Save for the rainy day

  16. Save for the rainy day. It can bail you out of a financially stressful situation when you are in real need of it.

  17. Don’t be extravagant

  18. Avoid holiday “hangovers” and impulsive shopping. If you can defer buying an article, put it off for a later period.

  19. Take professional guidance if required

  20. Don’t hesitate to seek professional help if you are not being able to manage your finances well or you are likely to face financial crisis in near future. It is rightly said “Prevention is always better than cure”.

*About the author: Sharon Marthers is one of the financial writers associated with the Debt Consolidation Care Community. With her in-depth knowledge and vast experience, she has had a profound impact through writing and advising on all debt consolidation issues and has presented useful tips to get out of debt. Her remarkable guidance and support has improved the community into a global hub for the debt related situations.

*Image Credit: Photograph by gaspi *your guide [via Flickr Creative Commons]

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Eric said...

"Use cash and minimize credit card usage"

This was by far the largest problem my wife and I were having. We had no issue with credit card usages but the debit card was killing us. The debit card is just as easy to swipe as the credit card, it is also just as easy to lose track of the spending. We have been running on the cash based envelope system for a little while now and It's working near perfect (I'd say 98%). It just requires lots of adjustments and patience.

kim-information exchange said...

Thanks for sharing this very useful tips. I definitely agree with you about your insights on credit cards. This will be definitely helpful.

Silver Rose said...

Also be brutally honest with yourself and don't hide your mounting problems. Of course it sucks when you tell yourself you have no money to spend and need to stay indoors (instead of comforting yourself with retail therapy). But being honest about what you can afford is the only way to stay within your means.

Get Out of Debt Guy said...

A really smart and well thought out approach. Congratulations on your efforts to get out of debt.

El Cheapo said...

Good tips. I would say minimizing credit card usage is somewhat of a double edge sword since not having a credit history could be bad when trying to get a loan and more importantly, you can use credit cards to get cash-back and other perks (extended warranties, etc.). So, once you've got your spending under control, using credit cards isn't such a bad thing. Just use with caution.

Robin Kerr Drulard said...

Hi -- These are some great ideas! I have a lot of debt -- I mean a lot (1.3 million in mortgages on houses that were never even finished or rented)! With that much (thanks to aggressive marketing by mortgage firms prior to the crash) I have no choice but to declare bankruptcy. Fortunately, it is not the shameful stigma of the past, but an acceptable way to start fresh after losing just about everything. I will take the appropriate steps to rebuild my credit and my life and am proud to have survived by shopping smart and making good choices. Thanks for your good ideas! Robin@ILoveAGoodBargain.com

QUESTRADE COUPONS - All Coupons, discounts, promo codes, offers, and reviews said...

Very good post. I dont ahve a debt problem but i enjoyed reading tihs to make sure i was following your steps. For me, on credit card debt, i tend to pay the entire thing off each month mostly to PO the cc company that they literally earn no financial charges from me..LOL..going on 5 years straight now and not a penny in interest!

Anonymous said...

I agree with Eric about the challenge that debit cards can lead to... it's not the same as using cash, and it offers less insurance that you can track your spending on the fly. The cash envelope program can make a lot of difference, in my experience.

Joe said...

My wife and I found ourselves in more debt than we wanted, with next to no savings and a new baby!

We took many of the steps you mention here, along with some others (like 0% credit card transfers..) and in a few short years we were able to turn things around to a surplus of savings, no debt and a much better peace of mind!

But the most important factor in our success was admitting we had a problem, and working together to get ourselves out of the problem.