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Can I Really Get Out of Debt?
The answer is yes, you can get out of debt. The fact that you are looking for help means you have already completed a very big first step, acknowledging there is a problem! Whether you have a little or a lot of Debt, dealing with debt can oftentimes seem overwhelming. But there are steps you can take and people that you can talk to that can help you take control of your debt. It’s never too late to take control of your debt and get your financial future back on track. Understanding your situation and having a clear idea of the steps you must take to start the process is the first part of the process!
Are All Kinds of Debt Equal?
There are two types of debt, personal debt and investment debt. Personal debt is what we generally think of when we think of debt. It is often short term, and often financed via a credit card. This can include the purchase of clothes, groceries or maybe even a vacation. Investment debt on the other hand, is a long term investment that will likely increase in value over time. This may include the purchase of a new home or financing an education. While there is no real good or bad debt, there are types of debt that are more essential than others. It is often personal debt that gets people in trouble and often the type where most cut-backs can be made. Also, it is oftentimes important to pay down credit card debt down faster than investment debt because of the high interest rates.
Is Debt Consolidation Right for Me?
In its most basic form, debt consolidation is taking out one loan to pay off multiple other loans. Oftentimes the new loan is a secured loan against an asset that serves as collateral, such as your house. Taking out this kind of secured loan will often allow for a lower interest rate, making it easier for you to pay it off. Additionally, having only one consolidated loan is nice because of the convenience of having just one payment a month. Keep in mind however, that debt consolidation isn’t for everyone or every situation. With debt consolidation, the monthly payments may be lower, but the amount paid in the long run can be significantly higher than having multiple loans. This is due to the length of the new loan. So if you’re not careful, debt consolidation may only treat the symptom of debt and not provide any real solution.
Is Filing Bankruptcy Always a Bad Thing?
As surprising as it may be, filing for bankruptcy is not always a bad thing. It’s a very individual choice, and every situation is different. Bankruptcy may, in some cases, allow an individual take control of their finances and get on a clear path to financial recovery. However, you need to know exactly what you are getting into before taking the step. For example, many loans like student loans or taxes will not go away by filing bankruptcy. So if those types of loans make up the majority of your debt, this course of action will do you little to no good. Also keep in mind the cost, time and resources necessary to file for bankruptcy. It is not a quick or cheap process, so be sure to take this into consideration when thinking about filing.
What Can I Do To Take Control of My Debt?
1. Evaluate How Much Debt You Have
You may think you know how much money you owe to others, but it is important to make an all inclusive list of those debts . Compile of list of all your debts, whom you owe them and how much your minimum payments are. Make sure to note specific credit cards and the interest rates you are paying on those credit cards. Include any student loans, mortgages, etc.
2. How Much Money are You Really Making?
It sounds simple, but as you start to go into debt, many people choose to ignore in reality, how much money is actually being taken home. Make a list of all your revenue sources and figure out, after taxes how much money you have coming in.
3. Figure Out How Much You are Currently Spending
Now this is where is gets fun. You need to make a list of everything you spend your money on over the course of the month. You can go through previous credit card and bank statements, but you also need to record cash transactions. It may be easier to take a month and after each purchase immediately record it in a ledger. You will be surprised at what you spend your money on without even realizing it. Be sure to include your big purchases as well as your small (that daily cup of coffee can add up fast!)
4. Evaluate, Evaluate, Evaluate and Make a Plan
Now that you know how much money you owe, how much income you have and where you are currently spending your money, it’s time to take a hard look at those numbers and develop a budget than you can stick with. Keep in mind that when managing money, it simply comes down to a simple concept – you need to earn more than you spend. If you are already in debt, you not only need to come up with a plan that allows you to pay off your debt, you also need a plan that enables you to live without not accruing anymore debt!
Look through your expenses, where can you cut down? What are non essential items in your budget? If you are having trouble coming up with a budget by cutting down on non essential items, you may need to be more creative. Take a look at your “fixed” expenses. Can you really afford the home you are in, or the car your drive? Perhaps you are going to need to sell your home to reduce the amount of debt you have. Or maybe it is a smart decision to consolidate your debt or even file for bankruptcy? You are going to need to make some difficult decisions regarding your financial future.
5. Consider Speaking to a Qualified Debt Manager
No one said this was going to be easy. Getting into debt is easier than getting out of it. But you can get out of it. There is a light at the end of the tunnel, and there are people out there who can help. If you are unsure how to answer some of these questions, you may consider speaking to a qualified debt manager in your area. They deal with people in your situation everyday!
6. Follow the Plan
You didn’t get into debt overnight and you won’t get out of it overnight. But if you stick with your plan, you will start chipping away at your debt, improve your credit score and start developing a lifestyle that works for you and your family. You will need to make important decisions everyday… do we eat out today, or go to the grocery store? It may seem overwhelming at first, but you will feel great knowing you are getting back on track!
7. Re-evaluate The Plan
In six months, a year, or after a life event (buying a home, getting a new job, having children) you will want to re-evaluate your plan. Life is constantly changing and your plan will need to change as well. The numbers will change, but the philosophy will remain the same – You need to make more than you spend!
We here at My-Financial-Security.com realize that getting out of debt can seem impossible. If you are still not sure how to go about developing a plan for yourself, we are more than happy to provide you with a free, no-obligation consultation with one of our professional credit counselors or debt managers. They will walk you through each step thoroughly, answer all your questions and help you work out a plan that works for you! ==>>
