If your family is anything like mine, then chances are, debt is one of the unfortunate constants in your life. In fact, the numbers are in, and the average US household has nearly $140,000 worth of debt. This isn’t a case of being a spendthrift; it’s just that rising medical costs, housing costs and a slow economy are making things a bit tougher than usual on the bulk of the population.
This amount of debt can cost you up to a month’s worth of salary every year if you don’t take care of it, however. Imagine working for free for a whole extra month! It’s for this reason that helpful sites such as The Debt Academy at http://www.debtacademy.com are seeing so many new applicants, who take advantage of the sage advice and actionable steps they offer to help you defeat the debt dragon. Here are three steps that you can take to help you climb out of the hole and reclaim your finances.
Take an Account of Your Expenditures and Income
This, basically, amounts to making a budget. At least, it’s the first step in making a sustainable one based on your income and liabilities. There are countless apps out there that facilitate this endeavor, such that you can simply enter in the numbers and a calculation will spew out a result.
From experience, one thing you must not neglect to do is to leave a bit of side cash for the things you like to do in life. Obviously, if you’re serious about paying down your debt, you’ll need to restrict these things; but you should be able to manage a bit of cash – not credit – for these life thrills.
The tally should comprise your rent and utilities, monthly credit card bills and all of your other outstanding debts. For the credit cards in particular, you need to set aside a separate column with a three-year pay-off term, since these almost always carry the highest interest rates. To parse it further, list cards with the highest interest rates first, and plan to either consolidate these bills, or pay them each off as soon as you can without placing undue pressure on your overall finances.
By the time you’re done, you should have a single monthly payment for which you’re responsible. Above many other things in your personal life, this is the number that you need to reduce to zero – unlike your previous payment plan, paying this will actually make a dent in the principal instead of merely paying off interest each month.
Seek Help With Your Debt
There are plenty of resources available in this regard. Before you start looking online or approaching banks for debt relief, be sure to order your credit reports so you know where you stand. You are eligible to receive a free credit report from all three reporting agencies every year – that’s Experian, TransUnion and Equifax.
It’s a good idea to get all three, too, so that you can check for any inconsistencies. It’s not uncommon to find discrepancies that, once fixed, could actually increase your credit score. Think of the credit score as an official measurement of your creditworthiness, which determines the kind of interest rates that lenders are willing to let you borrow at.
Once this is done, seek debt counseling from The Debt Academy or other reputable online source. If you have any bankruptcies on your record, you may end up needing a bankruptcy attorney or a credit counseling agency (I prefer the latter).
A helpful note: try to make any hard inquiries into your credit report, or requests for new, low-interest credit cards for balance transfers all within a two-week period. The reason for this is that every hard look causes your credit score to drop a little; however, if they’re all made within about a two-week window, multiple looks are treated as a single inquiry.
Monitor the Ongoing Changes, and Adjust
This is the equivalent of “field-testing” a theory. After your plan is in place, and you’ve paid off your balances every month, check your credit score several times per year to make sure the improvements are occurring on schedule. If you’ve been in the market for an auto loan, for example, but your offers weren’t very good because of your previous credit score, you may be able to get a much better deal now.
Of course, you should only be thinking about adding a new financial burden if it’s necessary – such as a new car for work, because the old one keeps breaking down or giving you costly problems. Furthermore, you may now be able to consolidate some of your bills with better terms, as well as indulge in zero-interest balance transfers. Just make sure to pay attention to the period – usually, they’re from 12-18 months – during which you have that interest-free grace period, and plan to pay it down within that time frame.
Within just a few years, you could be looking back and wondering how you got rid of so much debt. It’s not at all unheard of to tackle $50,000 or more of outstanding debt from two summers ago – there are plenty of stories on the web of couples doing precisely that. It takes planning and discipline though; but the journey is worth it. Debt has a way of dragging everything down, and we all want to be free.